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The impact of political connections on corporate tax burden: Evidence from the Chinese market

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  • Wang, Litan
  • You, Kefei

Abstract

This paper investigates how political connections affect corporate tax burden. We construct two multi-tiered political connections series and employ the Propensity Score Matching approach. We find that stronger political connections lead to a lower corporate tax burden in Chinese listed firms. Specifically, the nominal (effective) tax rate decreases by an average of 1.03% (0.33%) as the hierarchical position of Chairman or CEO in the government rises by one rank (e.g., from a sub-provincial to provincial minister), and by an average of 0.99% (0.98%) as the administrative level of the government where the Chairman or CEO holds the position rises by one level (e.g., from a provincial to a central government). Our further analysis shows that political connections reduce the tax burden for both SOEs and non-SOEs, especially for the latter.

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  • Wang, Litan & You, Kefei, 2022. "The impact of political connections on corporate tax burden: Evidence from the Chinese market," Finance Research Letters, Elsevier, vol. 47(PB).
    • Handle: RePEc:eee:finlet:v:47:y:2022:i:pb:s1544612322002045
    DOI: 10.1016/j.frl.2022.102944
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