| This paper focuses on three topics of how tax policy affects the decisions to industrial location,fixed asset investment,and risk-taking activities made by firms.Firstly,we investigate how local tax burden affects the location of firms by estimating a count data model,and then show how industrial agglomeration change the sensibility of capital towards tax differential.Empirical studies mainly pay their attention on finding whether local governments tax the rents,while less on the effect of agglomeration economies on the tax sensibility.We use micro data of firms in China to measure the distance-based localization and test whether agglomeration economies change the tax sensibility of firms.Our research shows that after controlling other variables,regional tax burden restrains the births of firm in both region specific and region-industry specific level and the more localized the industry is,the less tax sensibility of the firms have.The results are robust using alternative localization measure.Secondly,we then take an investigation at the traditional topic on how tax policy changes affect firms’ business investments behaviors.Using a difference-in-difference research design to solve the endogeneity problem,wo found a strong effect of tax bonus policy on fixed asset investment.The results are robust in different settings,but only a short-time effect.Wo also find that the investments only significantly in the next year after the policy put into effects because the adjustment cost and policy specific feature.Lastly,using the same policy treatment,we find a significantly negative effect on risk-taking activities,measured in a dummy variable indicating whether a firm invests in long term stock.The research suggests that local government should make different policy according to the difference of industries to make the "Mass Entrepreneurship and Innovation" more effective.Moreover,the tax incentives should account for the suppression on intensive development. |
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