Trade Liberalization and Corporate Income Tax Avoidance

18 Pages Posted: 14 May 2020

See all articles by Wenjing Gao

Wenjing Gao

affiliation not provided to SSRN

Yao Lu

Tsinghua University - School of Economics & Management

Xinzheng Shi

Tsinghua University - School of Economics & Management

Multiple version iconThere are 2 versions of this paper

Date Written: October 2019

Abstract

We identify the effect of trade liberalization on corporate income tax avoidance in a sample of Chinese manufacturing firms, taking advantage of China's entry into the World Trade Organization (WTO). We find that firms engage in more tax avoidance in industries with larger tariff reductions. Further analysis shows that firms with a lack of cash or a high demand for cash before WTO entry tend to engage in more tax avoidance after WTO entry. Our study also provides evidence that manipulating costs is one way that firms avoid corporate income tax.

JEL Classification: D22, F61, F63, H26

Suggested Citation

Gao, Wenjing and Lu, Yao and Shi, Xinzheng, Trade Liberalization and Corporate Income Tax Avoidance (October 2019). Economic Inquiry, Vol. 57, Issue 4, pp. 1963-1980, 2019, Available at SSRN: https://ssrn.com/abstract=3596406 or http://dx.doi.org/10.1111/ecin.12810

Wenjing Gao (Contact Author)

affiliation not provided to SSRN

Yao Lu

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

Xinzheng Shi

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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