Tax Collector or Tax Avoider? An Investigation of Intergovernmental Agency Conflicts

Posted: 7 Sep 2016 Last revised: 19 Oct 2017

See all articles by Tanya Y. H. Tang

Tanya Y. H. Tang

Brock University

Phyllis Mo

City University of Hong Kong (CityU) - Department of Accountancy

K. Hung Chan

Lingnan University - Department of Accountancy

Date Written: July 8, 2016

Abstract

Local governments play dual, but conflicting roles in China’s tax system. That is, they are both tax collectors and controlling shareholders of firms subject to tax payments. We investigate how local governments balance their tax collection and tax avoidance incentives. We find that the conflicts between central and local governments arising from the 2002 tax-sharing reform have led to more tax avoidance by local government-controlled firms, particularly when the local government’s ownership percentage of the firms is higher than the tax-sharing ratio. We also find evidence that the overall level of tax avoidance by local government-controlled firms in a region is positively associated with local fiscal deficits. As a high level of government ownership of corporations and intergovernmental tax sharing are common phenomena in many transitional economies, this study offers valuable insights into how the dual roles played by local governments affect tax policy enforcement in these economies.

Keywords: Tax Sharing Reform; Tax Avoidance; Tax Collection; Intergovernmental Agency Conflicts; Local Fiscal Deficits

JEL Classification: H26, H71, M40, G38

Suggested Citation

Tang, Tanya Y. H. and Mo, Phyllis and Chan, K. Hung, Tax Collector or Tax Avoider? An Investigation of Intergovernmental Agency Conflicts (July 8, 2016). Accounting Review, 92(2): 247-270, Available at SSRN: https://ssrn.com/abstract=2765771

Tanya Y. H. Tang

Brock University ( email )

500 Glenridge Ave.
St. Catherines, On L2S 3A1
Canada

Phyllis Mo

City University of Hong Kong (CityU) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

K. Hung Chan (Contact Author)

Lingnan University - Department of Accountancy ( email )

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
1,527
PlumX Metrics