Navigating the digital terrain: assessing the impact of digital infrastructure on local tax enforcement

This paper contributes to the existing literature by examining the impact of digital infrastructure on tax enforcement within local government contexts. We leverage the regional disparities resulting from the phased implementation of the ‘China Broadband Strategy’ (CBS) during 2014–2016 as an exogenous shock affecting local government tax enforcement (the degree to which local authorities collect legally mandated taxes from households and businesses). Utilizing panel data encompassing China’s 281 prefecture-level cities from 2004 to 2020 and employing a staggered Difference-in-Differences (DID), our empirical analysis reveals a notable improvement in local government tax enforcement within cities subject to the CBS intervention. Our study suggests that digital infrastructure may directly bolster the tax enforcement capacity of local governments through advancements in enforcement techniques and cost reduction mechanisms. Furthermore, we investigate the nuanced factors that may influence the efficacy of the CBS implementation, finding that cities with well-established IT sectors, flourishing cross-border e-commerce activities, robust innovation capabilities, and heightened levels of information consumption stand to benefit more substantially from the CBS initiative. Moreover, we observe the spillover effects of the policy implementation on neighbouring cities, which positively influence residents’ perceptions of local government tax performance.