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The effect of a fiscal squeeze on tax enforcement: Evidence from a natural experiment in China

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  • Chen, Shawn Xiaoguang

Abstract

This paper investigates the impact of the abolition of the agricultural taxes in 2005 across China on county governments' incentives for tax enforcement. I show that the revenue loss of county governments was largely offset by tougher tax enforcement. The incentive for VAT enforcement can be weakened, however, if the county: (1) receives a lower share of total VAT revenues; (2) has a broader VAT tax base; or, (3) has more abundant sources of revenue from land sales. These findings suggest that incentives of local governments can be vital to tax enforcement and to the tax capacity of a country.

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  • Chen, Shawn Xiaoguang, 2017. "The effect of a fiscal squeeze on tax enforcement: Evidence from a natural experiment in China," Journal of Public Economics, Elsevier, vol. 147(C), pages 62-76.
    • Handle: RePEc:eee:pubeco:v:147:y:2017:i:c:p:62-76
    DOI: 10.1016/j.jpubeco.2017.01.001
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