Corporate Tax Benefits from Politicians’ Hometown

49 Pages Posted: 11 Oct 2018

See all articles by Chunfang Cao

Chunfang Cao

Sun Yat-Sen University (SYSU); Southwest University of Finance and Economics

C.S. Agnes Cheng

Hong Kong Polytechnic University - School of Accounting and Finance

Changyuan Xia

Southwestern University of Finance and Economics (SWUFE) - School of Insurance

Cheng Zeng

University of Manchester

Date Written: September 18, 2018

Abstract

This paper investigates the impact of the geographic coincidence of firms and political leaders on corporate tax benefits. Taking advantage of a unique tax disclosure rule in China, which allows us to identify firm-specific tax benefits, we find that firms enjoy more favorable tax treatments if their registered city is the incumbent provincial leader’s hometown. This result is not driven by quid-pro-quo exchanges and informational advantage of the political leader. However, the effect is attenuated when the leader has stronger promotion incentives. Moreover, we show heterogeneities in the effect of hometown connection on corporate tax benefits in terms of the cost-benefit trade-off. Overall, our study sheds light on how the social identity of politicians engenders tax benefits for business entities.

Keywords: Political Leaders; Hometown; Social Identity; Tax Benefits

JEL Classification: H26; H71; M48

Suggested Citation

Cao, Chunfang and Cheng, C.S. Agnes and Xia, Changyuan and Zeng, Cheng, Corporate Tax Benefits from Politicians’ Hometown (September 18, 2018). Available at SSRN: https://ssrn.com/abstract=3251384 or http://dx.doi.org/10.2139/ssrn.3251384

Chunfang Cao

Sun Yat-Sen University (SYSU) ( email )

135, Xingang Xi Road
Guangzhou, Guangdong 510275
China

Southwest University of Finance and Economics ( email )

China

C.S. Agnes Cheng (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Changyuan Xia

Southwestern University of Finance and Economics (SWUFE) - School of Insurance ( email )

Liulin Campus 555, Liutai Avenue, W
Gezhi Building 227,Liulin Campus 555
成都市, SC Sichuan 611130
China

Cheng Zeng

University of Manchester ( email )

Oxford Road
Manchester, M13 9SS
United Kingdom

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