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Intergovernmental transfers and tax noncompliance

Author

Listed:
  • Bing Ye

    (Nanjing University of Finance and Economics)

  • Xunyong Xiang

    (Jinan University)

Abstract

This study investigates the effect of intergovernmental transfers on firms’ tax noncompliance. Using data from China where intergovernmental transfers vary substantially, we find that a large amount of intergovernmental transfers leads to a high degree of firms’ tax noncompliance. This finding is robust to the instrumental variable approach, an analysis based on a natural experiment, and various robustness checks. We also find that firms that communicate more frequently with the government than others engage more in tax noncompliance. In addition, the composition of intergovernmental transfers matters, that is, a high proportion of conditional transfers decreases firms’ tax noncompliance. Finally, we find that intergovernmental transfers are negatively correlated with the effective corporate income tax rate.

Suggested Citation

  • Bing Ye & Xunyong Xiang, 2020. "Intergovernmental transfers and tax noncompliance," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(2), pages 312-338, April.
    • Handle: RePEc:kap:itaxpf:v:27:y:2020:i:2:d:10.1007_s10797-019-09554-9
    DOI: 10.1007/s10797-019-09554-9
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    Cited by:

    1. Laszlo Goerke, 2021. "Tax Evasion by Firms," IAAEU Discussion Papers 202104, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    2. Hao Shi & Bing Ye, 2024. "Unfunded mandates and taxation," Fiscal Studies, John Wiley & Sons, vol. 45(1), pages 77-106, March.

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    More about this item

    Keywords

    Intergovernmental transfers; Tax noncompliance; Tax burden; China;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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