Tax Compliance and Investment Incentives: Firm Responses to Accelerated Depreciation in China

55 Pages Posted: 21 May 2019 Last revised: 6 May 2020

See all articles by Ziying Fan

Ziying Fan

Shanghai University of Finance and Economics - School of Public Economics & Administration

Yu Liu

Fudan University - School of Economics

Date Written: April 20, 2019

Abstract

We evaluate the effects of a Chinese accelerated depreciation policy that occurred in 2014 on firm investment. We present three findings. First, on average, the policy increased firms' investment in eligible capital, especially the purchase of equipment and machines. Second, the policy effects are stronger for larger firms, firms with more cash, and firms with better access to finance, which tend to be less financially constrained but have better tax compliance. Third, the effect magnitude increases with imputed county tax enforcement but decreases with provincial tax fraud rate. These results shed light on the importance of improving tax compliance in making tax incentives effective.

Keywords: tax compliance, tax incentives, accelerated depreciation, firm investment

JEL Classification: H32, D22

Suggested Citation

Fan, Ziying and Liu, Yu, Tax Compliance and Investment Incentives: Firm Responses to Accelerated Depreciation in China (April 20, 2019). Journal of Economic Behavior and Organization, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3374738 or http://dx.doi.org/10.2139/ssrn.3374738

Ziying Fan

Shanghai University of Finance and Economics - School of Public Economics & Administration ( email )

Shanghai, 200433
China

Yu Liu (Contact Author)

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China
02165642263 (Phone)

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