Abstract
This paper examines the influence of fiscal transparency on corporate tax avoidance, using a sample of Chinese enterprises. The findings indicate that enhancing regional fiscal transparency can significantly inhibit corporate tax avoidance. This is achieved by enhancing tax collection and administration. Additionally, the inhibitory effect can be strengthened by corporate rent-seeking behavior and the level of local debt. Further analysis reveals that the impact of fiscal transparency on tax avoidance is more significant for non-state-owned enterprises and large enterprises in China. Moreover, in regions characterized by high degrees of financial development and financial pressure, the enhancement of fiscal transparency has a more significant impact on reducing corporate tax avoidance compared to regions with lower degrees of financial development and financial pressure. The conclusions drawn from this study provide empirical evidence and policy implications for improving the government-enterprise relationship in China and deepening the understanding of the dynamics between government and the market.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Data availability
The data that support the findings of this study are available from the corresponding author upon request.
Notes
The corporate tax avoidance referred to in this paper is limited to the domestic tax avoidance behavior of enterprises, excluding international tax avoidance.
Due to the incomplete data of Tibet Autonomous Region, Guizhou Province and Hainan Province, the data of these three provinces are excluded from this study.
Description of data selection on fiscal transparency: the 2009–2012 report assessed the provincial fiscal transparency in 2006–2009, and the 2013–2018 report assessed the provincial fiscal transparency in 2011–2016. The existing reports lack an assessment of fiscal transparency in 2010. To ensure the continuity of observation data, this paper adopts simple interpolation method and uses the average value of fiscal transparency in 2009 and 2011 as the approximate substitute value of 2010 data.
Due to the limitation of space, the empirical results of this part and the following contents only show the results of the main explanatory variables, and the control variables are not shown.
It should be noted that the mediation effect test here adopts the latest mediation effect test method. That is, we examine the impact of the core explanatory variable on the mediation variables in regression, while the influence of the mediation variable on the explained variable is explained by the conclusions of classical literature.
References
Alejandro, E. M., & Jose, P. O. (2012). Fiscal transparency. Public Management Review, 14(8), 1153–1173.
Alt, J. E., & Lassen, D. D. (2005). Fiscal transparency, political parties, and debt in OECD countries. European Economic Review, 6,1403–1439.
Anirudh, D., Liangbo, M., & Maria, H. K. (2020). Effect of corporate tax avoidance activities on firm bankruptcy risk. Journal of Contemporary Accounting and Economics, 16(2).
Bahl, R., Martinez-Vazquez, & Wallace, S. (2013). The impact of fiscal decentralization on subnational tax effort. Public Finance Review, 41(4), 421–445.
Blaufus, K., Bob, J., Hundsdoerfer, J., & Kiesewetter, D. (2014). The impact of tax secrecy on tax compliance: An experimental investigation. Journal of Economic, 40, 103–114.
Binbin, T., & Ziying, F. (2016). Tax sharing, tax effort, and corporate tax evasion: Evidence from income tax sharing reform. Management World, 12, 36–46.
Degang, Z., Haohao, G., Yuanquan, L., & Weiyao H. (2021). Research on the impact of fiscal transparency on the equalization of basic public services. Macroeconomics, 11(5–16), 111.
Deqiu, C., Yunsen, C., & Zhiyong, D. (2016). Policy uncertainty, tax collection intensity and tax evasion. Management World, 5, 151–163.
Dequan, J., Weiping, L., Yongjian, S., & Zhenye, Y. (2020). Market liberalization and tax avoidance: evidence from the Shanghai-Hong Kong Stock Connect Program in China. Economic Systems, 44.
Desai, M. A., Foley, C. F., & Hines, J. R. (2006). Do tax havens divert economic activity? Economics Letters, 90(2), 219–224.
Fisman, R., Gatti, R., & Wei, S. J. (2006). Bargaining for bribes: The role of institutions. In World bank policy research working paper.
Gabriel, C. M., Júlio, C. A., et al. (2019). Fiscal transparency, government effectiveness and government spending efficiency: Some international evidence based on panel data approach. Economic Modeling, 79, 211–255.
Henry, H. H., Gerald, J. L., et al. (2016). Customer concentration and corporate tax avoidance. Journal of Banking and Finance, 72, 184–200.
James, E. A. (2010). Transparency and accountability: Empirical results for US States. Journal of Theoretical Politics, 22(4), 379–406.
Jeong, B. K., Yinghua, L., & Liandong, Z. (2010). Corporate tax avoidance and stock price crash risk: firm-level analysis. Journal of Financial Economics, 100(3), 639–662.
John, G., & Eva, L. (2015). Importance of the internal information environment for tax avoidance. Journal of Accounting and Economics, 60(1), 149–167.
Kangtao, Y., & Xing, L. (2014). Corporate tax avoidance and internal agency costs. Journal of Financial Research, 9, 158–176.
Lei, S., & Meng, T. (2019). Does the government’s fiscal transparency “stable expectations”? Public Finance Research, 8, 37–48.
Lorenzo, C., Elina, D. S., Salvatore, E., & Giuseppe, L. G.(2020). Assessing the impact of fiscal transparency on FDI inflows. Socio-Economic Planning Sciences, 73.
Mohammed, A., Ahmed, A. H., Grantley, T., & Lien, D. (2020). Is corporate tax avoidance associated with investment efficiency? North American Journal of Economics and Finance, 52.
Qian, Z., Guoqing, G., & Jian, X. (2022). Does digital economy promote corporate tax avoidance? A quasi-natural experiment based on the establishment of E-commerce demonstration cities. Accounting Research, 4, 71–88.
Sangmok, L., & Hadi, S. E. (2020). The effect of fiscal system reform on fiscal policy outcomes. Scottish Journal of Political Economy, 67(2), 186–200.
Shaohua, W., Yuru, Z., & Songsheng, C. (2022). Can fiscal transparency help enterprises “break away from the virtual to the real”? Based on the perspective of stable expectations and cooperation between government and enterprises. Journal of Shanghai University of Finance and Economics, 2, 45–60.
Shuo, S., & Rhys, A. (2020). The determinants of fiscal transparency in Chinese city-level governments. Local Government Studies, 46(1).
Tien, S. H., Zhihong, W., & Sebahattin, D. (2018). Overconfidence and tax avoidance: The role of CEO and CFO interaction. Journal of Accounting and Public Policy, 37(3), 241–253.
Wen, W., Huijie, C., & Yun, K. (2020). Directors with foreign experience and corporate tax avoidance. Journal of Corporate Finance, 62(C).
Wentao, M., & Peng, Z. (2020). Fiscal transparency, countercyclical regulation and the scale of government debt. World Economy, 5, 23–48.
Xin, Z., & Zhu, D. (2022). Tax avoidance and enterprise innovation: Based on the perspective of value and agency. Management Science, 2, 32–46.
Zhihua, W., Yaqing, L., & Xiong, Z. (2017). Research progress on fiscal transparency. Economic Perspectives, 3,136–149.
Ziying, F., & Binbin, T. (2013). Tax competition, tax enforcement and enterprise tax avoidance. Economic Research, 9, 99–111.
Acknowledgements
The authors did not receive support from any organization for the submitted work.
Author information
Authors and Affiliations
Contributions
XMC wrote the main manuscript text, including all the figures and sheets. CC gave overall guidance. All the authors reviewed the manuscript.
Corresponding author
Ethics declarations
Conflict of interest
The authors have no relevant financial or non-financial interests to disclose.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Cai, C., Cao, X. Will fiscal transparency inhibit corporate tax avoidance? Evidence from China. Int Tax Public Finance (2023). https://doi.org/10.1007/s10797-023-09804-x
Accepted:
Published:
DOI: https://doi.org/10.1007/s10797-023-09804-x
Keywords
- Fiscal transparency
- Corporate tax avoidance
- Enterprise rent-seeking
- Scale of local debt
- Tax collection and administration