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Fiscal incentives of local governments and the enterprise tax burden : firm-level evidence from China

Authors Zheng, Runze
Issue Date 2014
Summary Previous studies suggest that the fiscal incentives of local governments have profound economic implications, but few studies have provided firm-level evidence on the channels through which the changes in the fiscal incentives of local governments can affect firms. In this thesis, I explore the effects of changes in local governments’ fiscal incentives on firms’ behavior in the context of China. To address the endogeneity problem, I adopt a simulated instrumental variable (SIV) approach that exploits the exogenous changes in the local governments’ enterprise income tax retention rates. My findings show that a reduction in the fiscal revenue retention rates motivated the local governments' to strengthen their taxation enforcement and that this, in turn, resulted in an increase in the enterprise tax burden. I also find that fewer firms entered or exited areas that experienced an increased tax burden, which suggests that the market became less competitive. Key Words: Fiscal Incentive, Enterprise Income Tax, Tax Burden, Local Governments, Simulated Instrumental Variable, Firms’ Entry and Exit, Market Concentration
Note Thesis (M.Phil.)--Hong Kong University of Science and Technology, 2014
Language English
Format Thesis
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