The Effects Of The Composition Of Government Expenditure On Tax Evasion

Recently, with the rapid development of economic, China’s tax revenue enjoys a sustainable growth. But with the complex and subtle form of tax avoidance, our loss of tax revenue has become even more serious, for which corporate tax avoidance has caused wide attention. Previous studies of corporate tax avoidance mainly explore the impact of industry and enterprise characteristics as well as the tax effort of government. However, the effect on corporate tax avoidance of the other function of government, which is rationalizing the structure of fiscal expenditure, has not been fully discussed. In view of this, this paper studies on the basis of previous works to look into this issue.Firstly, we introduce institutional context, definition of the tax avoidance and the correlation theory of structure of fiscal expenditure. On this basis, we introduce the concept of agglomeration rent and combine with taxation and expenditure competition, to analyze the mechanisms of action. We also use the mathematical model to analyze and put forward the hypothesises.Secondly, we employ the Chinese Industrial Enterprises Database and fiscal data at the province level (1998-2006) and use the difference of national income accounting method and accounting standards to measure corporate tax avoidance. Also, we did related robustness tests. According to the results of the regression model, we draw the conclusions consistent with the expected hypothesises. We also draw further conclusions according to the nature of ownership of enterprises, location and expenditure categories.Finally, based on the conclusions we get the following inspirations that good economic development level and public services can substitute tax preferential treatment to enhance the investment attractiveness. In addition, the conclusions of this paper also provide a theoretical and practical basis for Chinese "two tax merger" in 2008.