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Fiscal centralization and corporate leverage in emerging markets: Evidence from the merger of tax bureaus in China

Author

Listed:
  • Jin Lv

    (Institute of Law-based Government Research, Jiangxi University of Finance and Economics)

  • Xinyu Ren

    (The International School, Jiangxi University of Finance and Economics)

  • Wendy (Hong) Wang

    (School of Accountancy, Jiangxi University of Finance and Economics)

  • Rufen Zheng

    (School of Finance, Jiangxi University of Finance and Economics)

Abstract

This study investigates how fiscal centralization influences corporate leverage in China by exploiting the 2016 consolidation of the National Tax Bureau (NTB) and Local Tax Bureaus (LTBs). Using a difference-in-differences design, we find that affected firms—local enterprises newly subject to NTB oversight—cut leverage by 0.107 standard deviations relative to unaffected peers. The reduction is larger for firms that maintained close ties with local governments before the reform, indicating that centralization improves corporate governance and mitigates center–local agency frictions. The results offer policy guidance for China's ongoing deleveraging initiative.

Suggested Citation

  • Jin Lv & Xinyu Ren & Wendy (Hong) Wang & Rufen Zheng, 2025. "Fiscal centralization and corporate leverage in emerging markets: Evidence from the merger of tax bureaus in China," Economics Bulletin, AccessEcon, vol. 45(4), pages 1762-1776.
    • Handle: RePEc:ebl:ecbull:eb-25-00305
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    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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