Government Size and Tax Evasion: Evidence from China

19 Pages Posted: 8 May 2015

See all articles by Lixing Li

Lixing Li

Peking University - China Center for Economic Research (CCER)

Guangrong Ma

Peking University; Renmin University of China - School of Finance

Date Written: May 2015

Abstract

This paper investigates how government size affects tax evasion in China. Using matched county‐firm data for 1998–2005, we estimate the impact of county government size on the relationship between a firm's reported profit and imputed profit based on the national income accounts. A larger government is found to be correlated with more severe tax evasion, especially for state‐owned and collectively‐owned firms. Such an effect is stronger when local governance become worse. This paper shows that a large government does not bring about a strong state capacity to enforce tax rules at the local level in China.

Suggested Citation

Li, Lixing and Ma, Guangrong, Government Size and Tax Evasion: Evidence from China (May 2015). Pacific Economic Review, Vol. 20, Issue 2, pp. 346-364, 2015. Available at SSRN: https://ssrn.com/abstract=2603924 or http://dx.doi.org/10.1111/1468-0106.12110

Lixing Li (Contact Author)

Peking University - China Center for Economic Research (CCER) ( email )

Beijing, 100871
China

Guangrong Ma

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

Renmin University of China - School of Finance

Ming De Main Building
Renmin University of China
Beijing, Beijing 100872
China

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