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China's Value‐added Tax Reform and Firms' Corporate Social Responsibility

Author

Listed:
  • Lexin Zhao
  • Qianbin Feng

Abstract

Corporate social responsibility (CSR) plays a vital role in advancing sustainable development. This study used China's 2018 value‐added tax (VAT) rate reduction reform as a quasi‐natural experiment to examine how indirect tax adjustments influence CSR performance. The results indicated that decreased VAT rates enhanced CSR performance by improving corporate cash flow, increasing corporate profits, and alleviating managerial myopia (short‐term decision making). The first two channels relaxed internal resource constraints, while the latter enhanced management's willingness to engage in long‐term, socially responsible investments. Further analysis showed that these positive effects were mainly evident in enterprises with weaker market power, higher levels of corporate governance, and those subject to stringent environmental regulations. This study enriches the literature on taxation and CSR, demonstrating that fiscal policy tools, such as VAT rate reduction, can act as effective levers to encourage sustainable corporate practices and align business growth with social objectives.

Suggested Citation

  • Lexin Zhao & Qianbin Feng, 2025. "China's Value‐added Tax Reform and Firms' Corporate Social Responsibility," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 33(6), pages 91-131, November.
    • Handle: RePEc:bla:chinae:v:33:y:2025:i:6:p:91-131
    DOI: 10.1111/cwe.12619
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    References listed on IDEAS

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