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Trade Liberalization And Corporate Income Tax Avoidance

Author

Listed:
  • Wenjing Gao
  • Yao Lu
  • Xinzheng Shi

Abstract

We identify the effect of trade liberalization on corporate income tax avoidance in a sample of Chinese manufacturing firms, taking advantage of China's entry into the World Trade Organization (WTO). We find that firms engage in more tax avoidance in industries with larger tariff reductions. Further analysis shows that firms with a lack of cash or a high demand for cash before WTO entry tend to engage in more tax avoidance after WTO entry. Our study also provides evidence that manipulating costs is one way that firms avoid corporate income tax. (JEL D22, F61, F63, H26)

Suggested Citation

  • Wenjing Gao & Yao Lu & Xinzheng Shi, 2019. "Trade Liberalization And Corporate Income Tax Avoidance," Economic Inquiry, Western Economic Association International, vol. 57(4), pages 1963-1980, October.
    • Handle: RePEc:bla:ecinqu:v:57:y:2019:i:4:p:1963-1980
    DOI: 10.1111/ecin.12810
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    Citations

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    Cited by:

    1. Rui Pan & Dao‐Zhi Zeng, 2023. "The effects of trade liberalization on tax avoidance," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 898-932, December.
    2. Razen, Michael & Kupfer, Alexander, 2023. "The effect of tax transparency on consumer and firm behavior: Experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 104(C).

    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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