The Political Calendar of Tax Break Policy: Firm-Level Evidence from China

50 Pages Posted: 10 Aug 2020 Last revised: 4 Sep 2020

See all articles by Ling Chen

Ling Chen

Johns Hopkins SAIS

Hao Zhang

Massachusetts Institute of Technology (MIT)

Date Written: August 3, 2020

Abstract

A rich literature has noted that electoral pressures in democracies engender political business cycles. We argue that in autocracies with strong institutions of bureaucratic management, evaluation systems based on economic performance have also generated political cycles of tax break policies. Furthermore, institutional forces have sequenced leaders' choices and produced distributional consequences across firms. Combining panel data of 1,510,153 firm-year observations with city leader data from 1995 to 2007, we find that the tax break amount dropped for most firms in the first and last year of mayors' office, i.e. the "busy" year and the "dust-settled" year. Nevertheless, large foreign firms that were especially important for mayoral performance showed a countercyclical rise in tax cuts in the beginning year. In cities where large firms dominate industrial clusters, mayors were also likely to prioritize the tax break agenda. In contrast, small- and medium-sized private firms became the bearers of tenure cycles.

Suggested Citation

Chen, Ling and Zhang, Hao, The Political Calendar of Tax Break Policy: Firm-Level Evidence from China (August 3, 2020). Available at SSRN: https://ssrn.com/abstract=3666335 or http://dx.doi.org/10.2139/ssrn.3666335

Ling Chen (Contact Author)

Johns Hopkins SAIS ( email )

1740 Massachusetts Ave NW
Washington, DC 20036
United States

Hao Zhang

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
Cambridge, MA 02139
United States

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