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Will fiscal transparency inhibit corporate tax avoidance? Evidence from China

Author

Listed:
  • Chang Cai

    (Central University of Finance and Economics)

  • Xiaomin Cao

    (Central University of Finance and Economics)

Abstract

This paper examines the influence of fiscal transparency on corporate tax avoidance, using a sample of Chinese enterprises. The findings indicate that enhancing regional fiscal transparency can significantly inhibit corporate tax avoidance. This is achieved by enhancing tax collection and administration. Additionally, the inhibitory effect can be strengthened by corporate rent-seeking behavior and the level of local debt. Further analysis reveals that the impact of fiscal transparency on tax avoidance is more significant for non-state-owned enterprises and large enterprises in China. Moreover, in regions characterized by high degrees of financial development and financial pressure, the enhancement of fiscal transparency has a more significant impact on reducing corporate tax avoidance compared to regions with lower degrees of financial development and financial pressure. The conclusions drawn from this study provide empirical evidence and policy implications for improving the government-enterprise relationship in China and deepening the understanding of the dynamics between government and the market.

Suggested Citation

  • Chang Cai & Xiaomin Cao, 2024. "Will fiscal transparency inhibit corporate tax avoidance? Evidence from China," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(5), pages 1274-1294, October.
    • Handle: RePEc:kap:itaxpf:v:31:y:2024:i:5:d:10.1007_s10797-023-09804-x
    DOI: 10.1007/s10797-023-09804-x
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    References listed on IDEAS

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    1. Huang, Henry He & Lobo, Gerald J. & Wang, Chong & Xie, Hong, 2016. "Customer concentration and corporate tax avoidance," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 184-200.
    2. Wen, Wen & Cui, Huijie & Ke, Yun, 2020. "Directors with foreign experience and corporate tax avoidance," Journal of Corporate Finance, Elsevier, vol. 62(C).
    3. Desai, Mihir A. & Foley, C. Fritz & Hines, James Jr., 2006. "Do tax havens divert economic activity?," Economics Letters, Elsevier, vol. 90(2), pages 219-224, February.
    4. Dhawan, Anirudh & Ma, Liangbo & Kim, Maria H., 2020. "Effect of corporate tax avoidance activities on firm bankruptcy risk," Journal of Contemporary Accounting and Economics, Elsevier, vol. 16(2).
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fiscal transparency; Corporate tax avoidance; Enterprise rent-seeking; Scale of local debt; Tax collection and administration;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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