Anti-Corruption, Political Connections And Corporate Tax Avoidance

The anti-corruption campaign since the 18 th CPC National Congress has had a profound impact on China's macro-politics,economy and society.In the field of academic research,around this special period,some scholars have studied the effects of anti-corruption on micro-firm behavior such as corporate performance,accounting information quality,earnings management level and investment level.So far,however,there has been no empirical literature to study the role of anti-corruption in corporate tax avoidance.Using the anti-corruption policy,this paper empirically examines the influence of the rising cost of political connections on the tax avoidance behavior of private enterprises in China,and examines the regulatory role of the institutional environment level of the enterprises in the region.Firstly,in the review part of the literature,I combs the existing research results in the field of the influencing factors of tax avoidance,the economic consequences of political relations,the political relations and the field of corporate tax avoidance,and put forward the research motivation of this paper.Then I review the transaction cost theory,relational contract theory,rent-seeking theory and political cost hypothesis in the theoretical basis.Finally,the empirical research part is the key chapter of this paper.In this section,I first analyze and test the tax avoidance effect of political relations.I find that the effective tax rate of private enterprises with political relations is lower than that of non-political private enterprises.Then,using the difference-in-difference(DID)model,I find that the motivation of private enterprises to avoid tax using political relations drops evidently due to the sudden rise of cost of political connections after anti-corruption.Further research found that the above-mentioned decline in tax incentives is particularly evident in sub-samples with poor external institutional environment.After research,I draw the following conclusions:(1)under the Chinese market and system background,the relational resources have a significant influence on the tax avoidance decision of our private enterprises.Political relationship is a decisive factor that affects the tax avoidance of enterprises,which can effectively reduce the effective tax rate of enterprises;(2)The external supervision at the national level can significantly weaken the private enterprises ' use of political relations for tax avoidance.Anti-corruption as an external governance mechanism,which affects the governance of the political relations of enterprises,and then changes the enterprise's tax avoidance decision;(3)The institutional environment in the area of the enterprise has far-reaching influence on the transaction cost,the choice of transaction type and the sensitivity of political cost.When the institutional environment level of the enterprise is lagging behind,the enterprise's political cost impact is bigger,and the motive of relying on political relation to evade tax after anti-corruption is adjusted more obviously.The research of this paper is instructive to understand how the political relationship,cost of political connections and the system environment affect the private enterprise's tax avoidance strategy in the emerging market countries,and also empirically examines the economic significance of the national policy of anti-corruption against corruption.In addition,the paper also improves and expands the existing literatures in the research design.Through the research,this article obtains the following enlightenment.First of all,for the private enterprises,China is in the process of institutional transition and is also deeply influenced by the relationship-based culture hence relational resources have a significant impact on corporate tax avoidance.However,businesses need to be aware of the political costs of tax avoidance and political connections.As China's system is increasingly perfected,in the long run,focusing on internal capacity building is the only way for companies to achieve sustainable development.Secondly,for government departments,anti-corruption sounded the alarm for government officials to use administrative power to allocate resources according to law.Anti-corruption policy uphold social fairness and justice,improve the external regulatory environment that enterprises face when they engage in economic activities,and strengthen the governance of the political relations between government and enterprises,thus providing an equal opportunity for the development of private enterprises.Government agencies should take this opportunity to strengthen the regional system construction,improve the protection of property rights and create a good environment for the operation and development of private enterprises.