AAA Spark Meeting of the Regions

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Does Local Government Debt Affect Tax Avoidance of State-Owned Enterprises

Sat, June 3, 3:30 to 4:30pm, Virtual, TBA

Abstract

We examine the effect of local government debt on tax avoidance of state-owned enterprises (SOEs). Based on a sample of Chinese A-share listed SOEs with hand-collected local government debt related data from various yearbooks between 2008 and 2017, we find that local government debt is positively associated with tax avoidance of SOEs, and that the positive relation is more pronounced for regional SOEs, for SOEs with shares more than 40 percentage of local government ownership, and for SOEs whose local government has severer fiscal deficits and lower percentage of the sum of administrative charges, fines and confiscation income in non-tax revenue. We also find that SOEs with more tax avoidance have more cash dividend distribution and lower firm value. Our study provides insight into the dual role of the local government as SOEs’ controlling shareholder and tax claimant and has important policy implications.

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