Regional Favoritism and Tax Avoidance: Evidence from China

31 Pages Posted: 7 Mar 2019

See all articles by Yunsen Chen

Yunsen Chen

Central University of Finance and Economics (CUFE)

Jianqiao Huang

Central University of Finance and Economics (CUFE) - School of Accountancy

Hang Liu

Dongbei University of Finance and Economics

Weimin Wang

Saint Louis University

Date Written: March 2019

Abstract

This paper investigates the effect of officials’ regional favoritism on corporate tax avoidance activity in China. We find that firms located in regions that were formerly administered by the current provincial governors have a higher level of tax avoidance than other firms in the province. Further evidence indicates that regional favoritism affects tax avoidance through two channels: regional politicians’ personal connections with the governor and firms’ political access to the governor. Overall, the findings support China's current official selection and promotion guidelines that restrict hometown favoritism. Our results further imply that favoritism can also extend to officials’ former administrative regions.

Keywords: Regional favoritism, Tax avoidance, Political geography, Distributive politics

Suggested Citation

Chen, Yunsen and Huang, Jianqiao and Liu, Hang and Wang, Weimin, Regional Favoritism and Tax Avoidance: Evidence from China (March 2019). Accounting & Finance, Vol. 58, Issue 5, pp. 1413-1443, 2019. Available at SSRN: https://ssrn.com/abstract=3347977 or http://dx.doi.org/10.1111/acfi.12447

Yunsen Chen (Contact Author)

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Jianqiao Huang

Central University of Finance and Economics (CUFE) - School of Accountancy ( email )

Beijing
China

Hang Liu

Dongbei University of Finance and Economics ( email )

Dalian, 116025
China

Weimin Wang

Saint Louis University ( email )

63103

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