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Location-based tax incentives and entrepreneurial activities: evidence from Western Regional Development Strategy in China

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  • Zhikuo Liu

    (Shanghai University of Finance and Economics)

  • Huihang Wu

    (Shanghai University of Finance and Economics)

  • Jianfeng Wu

    (Fudan University)

Abstract

This paper investigates the effect of location-based tax incentives on local economy through attracting entrepreneurial activities in the context of China. We exploit the differentials in the entry of new private firms across counties on the border of China’s Western Regional Development Strategy (WRDS). This strategy introduces an 18% reduction in corporate income tax rates for firms in the western areas in China after 2000 if they belong to the sectors encouraged by the central government. Comparing contiguous border county pairs in a triple difference-in-difference framework, we find that the increase in the number of new entrants eligible for tax reduction is larger in the treatment counties than in the control ones. We also find that new entrants increase in treated counties not at the cost of significant loss in nearby untreated counties. Our further analysis shows that whether a treatment county is more favored by new firms due to tax incentives depends on its local industrial base and market environment.

Suggested Citation

  • Zhikuo Liu & Huihang Wu & Jianfeng Wu, 2019. "Location-based tax incentives and entrepreneurial activities: evidence from Western Regional Development Strategy in China," Small Business Economics, Springer, vol. 52(3), pages 729-742, March.
    • Handle: RePEc:kap:sbusec:v:52:y:2019:i:3:d:10.1007_s11187-017-9982-3
    DOI: 10.1007/s11187-017-9982-3
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    Cited by:

    1. Yuying Wu & Zhiqiang Wang & Yuan Lu, 2023. "Mapping the evolution of entrepreneurial research themes in China: A combination analysis of co-word and critical event," Asia Pacific Journal of Management, Springer, vol. 40(3), pages 1133-1167, September.
    2. Yue Dai, 2021. "A Behavioral Cultural-Based Development Analysis of Entrepreneurship in China," Administrative Sciences, MDPI, vol. 11(3), pages 1-16, September.
    3. Maria O. Kakaulina & Dmitry R. Gorlov, 2022. "Assessment of the Impact of Tax Incentives on Investment Activity in Special Economic Zones of the Russian Federation," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 21(2), pages 282-324.
    4. Fenjie Long & Longfei Zheng & Haifeng Qian, 2023. "Entrepreneurship in China’s peripheral regions," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 70(1), pages 287-313, February.
    5. Yulong Chen & Kevin D. Duncan & Liyuan Ma & Peter F. Orazem, 2023. "How relative marginal tax rates affect establishment entry at state borders," Small Business Economics, Springer, vol. 60(3), pages 1081-1103, March.
    6. Tao, Peng & Gong, Feng & Zhu, Kaiyue, 2023. "Tax competition among local governments: Evidence from the spillovers of location-based tax incentives in China," China Economic Review, Elsevier, vol. 82(C).
    7. Yufeng Wang & Shijun Zhang & Luyao Zhang, 2023. "The Impact of Location-Based Tax Incentives and Carbon Emission Intensity: Evidence from China’s Western Development Strategy," IJERPH, MDPI, vol. 20(3), pages 1-23, February.
    8. Karolis Matikonis & Matthew Gobey, 2024. "Small Business Property Tax Reductions and Firm Productivity," Small Business Economics, Springer, vol. 62(1), pages 307-324, January.
    9. Martin Hemmert & Adam R. Cross & Ying Cheng & Jae-Jin Kim & Masahiro Kotosaka & Franz Waldenberger & Leven J. Zheng, 2022. "New venture entrepreneurship and context in East Asia: a systematic literature review," Asian Business & Management, Palgrave Macmillan, vol. 21(5), pages 831-865, November.
    10. Long, Wenbin & Wu, Huiying & Li, Lidan & Ying, Sammy Xiaoyan & Li, Sihai, 2024. "Mixed-ownership structure, non-state-blockholder coalition, and tax avoidance," International Review of Financial Analysis, Elsevier, vol. 91(C).

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    More about this item

    Keywords

    Place-based policies; Entrepreneurial activities; Tax incentives; China;
    All these keywords.

    JEL classification:

    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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