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China's local government debt and firm tax burden

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  • Yao, Yining
  • Guo, Min
  • Jiang, Ping
  • Xu, Lei

Abstract

We establish a relationship between China's local government debt (LGD) and the tax burden on firms. Using datasets of LGD and listed firms from 2009 to 2021, we find that LGD significantly reduces firm tax burden. The tax reduction effect of LGD is particularly pronounced in regions with business-friendly environments and lower fiscal pressure, and is more evident among state-owned enterprises (SOEs) and less-profitable firms. We also find that new government bonds demonstrate a stronger effect on reducing firm tax burden than refinancing bonds do. The strategic growth of LGD can be meaningfully applied to stimulate firm and regional growth.

Suggested Citation

  • Yao, Yining & Guo, Min & Jiang, Ping & Xu, Lei, 2024. "China's local government debt and firm tax burden," Pacific-Basin Finance Journal, Elsevier, vol. 87(C).
    • Handle: RePEc:eee:pacfin:v:87:y:2024:i:c:s0927538x2400221x
    DOI: 10.1016/j.pacfin.2024.102469
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    More about this item

    Keywords

    Local government debt; Firm tax burden; Fiscal pressure; China;
    All these keywords.

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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