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Digitalization of tax administration and corporate performance: Evidence from China

Author

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  • He, Yuhan
  • Yi, Yang

Abstract

This paper finds a direct causal relationship between company performance and the digitization of tax collection. Using the “quasi-natural experiment” of the implementation in 2013 of the third stage of the China Tax Administration Information System (CTAIS-3) pilot, we conduct an empirical test based on micro-data of listed companies from 2009 to 2021 and discover that by increasing taxes on firms, lowering the size of new investments, and intensifying financial problems, which result in lower operational income, the critical CTAIS-3 pilot for digitizing tax administration significantly reduces corporate performance. Enhanced tax enforcement is particularly prominent if a firm is with significant financing constraints, is a non-state-owned enterprise, or is bigger. Furthermore, we find that the implementation of the CTAIS-3 pilot has increased fairness because it is more effective in lowering the performance of large-scale enterprises, primarily because it reduces the government subsidies and tax benefits that these companies receive.

Suggested Citation

  • He, Yuhan & Yi, Yang, 2023. "Digitalization of tax administration and corporate performance: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:finana:v:90:y:2023:i:c:s1057521923003757
    DOI: 10.1016/j.irfa.2023.102859
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    More about this item

    Keywords

    Information technology adoption; Performance; Tax burden; Tax fairness;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance

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