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How Do Tax Incentives Lead to Investment Shifting? Evidence from China

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  • Tingting Ni
  • Xinyue Wang
  • Yuetang Wang

Abstract

Corporate VAT planning, though difficult to observe, has become more prominent. By considering the Chinese VAT transition as an external policy shock, this article adopts a difference-in-difference model to study this issue for the period 2006–2009. The results indicate that companies, in particular companies with high financing constraints and low type I agency costs, had investment-shifting behavior, so as to reduce the tax burden. Compared with agency costs, financing constraints have a greater influence on firms’ shifting. Further, the market has a positive attitude toward shifting of high financing constraints companies, but a negative attitude toward that of high agency costs companies.

Suggested Citation

  • Tingting Ni & Xinyue Wang & Yuetang Wang, 2022. "How Do Tax Incentives Lead to Investment Shifting? Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(7), pages 2079-2092, May.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:7:p:2079-2092
    DOI: 10.1080/1540496X.2021.1956900
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    Cited by:

    1. Guo, Yue Mei & Li, Xiao, 2023. "The impact of greater VAT tax neutrality on total factor productivity: Evidence from China’s VAT credit refund reform in 2018," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 922-936.

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