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Government Intervention and Automobile Industry Structure: Theory and Evidence from China

Author

Listed:
  • Lin Ma

    (School of Banking & Finance, University of International Business and Economics, Beijing 100029, China)

  • Qinchuan Du

    (Academy of Macroeconomic Research, National Development and Reform Commission, Beijing 100038, China)

  • Tian Wu

    (NCMIS, Academy of Mathematics and Systems Science, Chinese Academy of Sciences, Beijing 100190, China
    School of Economics and Management, University of Chinese Academy of Sciences, Beijing 100190, China
    Key Laboratory of Big Data Mining and Knowledge Management, Chinese Academy of Sciences, Beijing 100190, China)

Abstract

The development of the automobile maintenance industry less developed to satisfy the increasing demand for automobile maintenance service as the automobile manufacturing industry increased rapidly in China. This is not conducive to the sustainable development of the automobile industry. Besides the factors of market behavior that can affect the automobile industry structure, like an investment, operation structure or economic development stage, the structure is also influenced by government intervention. We investigated the unbalanced development of automobile structure from the perspective of government incentives, and provide a logical framework for analyzing the industrial policies on the automobile industry. We first established a two-sector theoretical model with government intervention, and we found that the governments’ GDP incentive induced the biased intervention policy. More preferential policies are given to enterprises of automobile manufacturing industries as they contribute more to intermediate goods and capital. The greater the government’s GDP incentive, the more biased the intervention will be. Then we test the differential impact of GDP incentive on tax avoidance of the two kinds of firms empirically. The empirical results show that GDP incentive of the government induced more preferential treatment to automobile manufacturing enterprises, and thus, increased their tax avoidance. This phenomenon is more significant in SOEs, larger firms and firms belong to local governments. Understanding the incentive and implementation of industrial policy can help us know the evolution of automobile industrial structure better, and then improve industrial policy better to promote the transformation and upgrading of automobile industrial structure.

Suggested Citation

  • Lin Ma & Qinchuan Du & Tian Wu, 2019. "Government Intervention and Automobile Industry Structure: Theory and Evidence from China," Sustainability, MDPI, vol. 11(17), pages 1-25, August.
    • Handle: RePEc:gam:jsusta:v:11:y:2019:i:17:p:4721-:d:262232
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