Transportation Infrastructure Development and Tax Avoidance: Evidence From a Quasi-Natural Experiment

Posted: 3 Feb 2020

See all articles by Caiyue Ouyang

Caiyue Ouyang

Beijing Jiaotong University

Jiacai Xiong

Jiangxi University of Finance and Economics

Jun Yao

Deakin University

Lyu Fan

Deakin University

Date Written: January 9, 2020

Abstract

Utilizing the launch of high-speed railway (HSR) service in China as a quasi-natural experiment, we identify an important social benefit of the development of transportation infrastructure: the reduction of firms’ value-destroying tax avoidance. Specifically, we find that after the opening of HSR lines to the cities where firms are located, firms have lower information asymmetry and engage in less tax avoidance, which leads to enhanced firm value. In further analysis, we find that this relation is more prominent for firms whose managers have a high propensity to extract rents through aggressive tax strategies. Our results indicate that the launch of HSR service reduces the cost of monitoring, thereby constraining insiders’ ability to extract private benefits under the guise of tax avoidance. To rule out alternative explanations, we conduct several additional analyses.

Keywords: high-speed railway, geographic proximity, tax avoidance; agency problem

JEL Classification: G34, H26, H54, O18

Suggested Citation

Ouyang, Caiyue and Xiong, Jiacai and Yao, Jun Alex and Fan, Lyu, Transportation Infrastructure Development and Tax Avoidance: Evidence From a Quasi-Natural Experiment (January 9, 2020). Available at SSRN: https://ssrn.com/abstract=3516977

Caiyue Ouyang

Beijing Jiaotong University

China

Jiacai Xiong

Jiangxi University of Finance and Economics ( email )

South Lushan Road
Nanchang, Jiangxi 330013
China
330013 (Fax)

Jun Alex Yao (Contact Author)

Deakin University ( email )

Burwood, Victoria 3215
Australia

Lyu Fan

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia
3125 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
109
PlumX Metrics