The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance

Management Science, forthcoming

Nanyang Business School Research Paper No. 21-28

47 Pages Posted: 10 Feb 2018 Last revised: 15 Sep 2021

See all articles by Tao Chen

Tao Chen

Nanyang Business School, Nanyang Technological University; affiliation not provided to SSRN

Tan Youchao

Southwestern University of Finance and Economics (SWUFE)

Jinghua Wang

Nanjing Audit University

Cheng (Colin) Zeng

Hong Kong Polytechnic University

Date Written: October 10, 2018

Abstract

Using a large sample of unlisted industrial firms in China, we find that a decrease in local governments’ land transfer revenues leads to lower tax avoidance by firms within their jurisdiction. Our cross-sectional variation tests suggest that the tax-avoidance-reduction effect is stronger in cities with higher land finance dependence and government intervention, and where the political leaders have stronger promotion incentives. However, the effect is moderated for politically connected firms. Further analysis reveals that intensified tax enforcement is the mechanism through which land transfer revenue losses result in decreased tax avoidance. Our study offers novel evidence on a previously under-explored determinant of corporate tax avoidance through the lens of land finance.

Keywords: Land finance, Tax avoidance, Political incentives, Tax enforcement

JEL Classification: G38, M48, H26, H71

Suggested Citation

Chen, Tao and Youchao, Tan and Wang, Jinghua and Zeng, Cheng, The Unintended Consequence of Land Finance: Evidence from Corporate Tax Avoidance (October 10, 2018). Management Science, forthcoming, Nanyang Business School Research Paper No. 21-28, Available at SSRN: https://ssrn.com/abstract=3121588 or http://dx.doi.org/10.2139/ssrn.3121588

Tao Chen

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

affiliation not provided to SSRN

Tan Youchao

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Jinghua Wang

Nanjing Audit University ( email )

86 Yushan W Rd
Pukou, Jiangsu 210017
China

Cheng Zeng (Contact Author)

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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