Trade Liberalization and Corporate Income Tax Avoidance

41 Pages Posted: 21 Nov 2016 Last revised: 9 Jan 2017

See all articles by Yao Lu

Yao Lu

Tsinghua University - School of Economics & Management

Xinzheng Shi

Tsinghua University - School of Economics & Management

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2016

Abstract

We investigate the effect of trade liberalization on corporate income tax avoidance in a sample of Chinese manufacturing firms, using China’s entry into the World Trade Organization (WTO) as a natural experiment. We find that firms engage in more tax avoidance in industries with larger tariff reductions. We also find that firms with better corporate governance engage in less tax avoidance compared with their counterparts. Further analysis shows that firms with a lack of cash or a high demand for cash before WTO entry tend to engage in more tax avoidance after WTO entry. Our study also provides suggestive evidence that manipulating costs could be a way for firms to avoid corporate income tax.

Keywords: Trade liberalization, tax avoidance, WTO entry

JEL Classification: D22, F61, F63, H26

Suggested Citation

Lu, Yao and Shi, Xinzheng, Trade Liberalization and Corporate Income Tax Avoidance (December 20, 2016). Available at SSRN: https://ssrn.com/abstract=2873016 or http://dx.doi.org/10.2139/ssrn.2873016

Yao Lu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Xinzheng Shi (Contact Author)

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
99
Abstract Views
592
rank
326,508
PlumX Metrics