Will Tax Administration Affect The Efficiency Of Corporate Investment?

This paper is based on the reform of Enterprise Income Tax Sharing in 2002,that is,local tax authorities will reduce the effort of enterprise income tax on account of the decrease of local government's share ratio,to study the impact of tax administration on corporate investment efficiency.Based on the 1998-2007 China Industrial Enterprise Database,the Principal-agent Theory,the "Luxury Investment Effect" and the "Rational Investment Effect" of Finance Constraint Theory,this paper has an in-depth analysis of the relationship between tax administration and corporate investment efficiency by using the Difference-in-Differences model.Finally,the study finds that,the laxation in tax administration by local tax authorities will significantly reduce the efficiency of corporate investment,according to the Principal-agent Theory and the "Luxury Investment Effect" of Finance Constraint Theory.Since the tax authorities' effort on state-owned enterprises is basically the same before and after the refonn,the laxation in tax administration will only significantly reduce the investment efficiency of non-state-owned enterprises,and has no influence on the state-owned enterprises'.For those in the industry with less competitors and those in the region with lower marketization,there exist significant negative effects due to relatively high agency costs.And the"Rational Investment Effect" of Finance Constraint Theory is valid only for regions with higher marketization,that is,the laxation in tax administration will increase investment efficiency of the corporates in higher marketization region.Based on the above results,this paper suggests that tax authorities should appropriately improve tax administration.For non-state-owned enterprises,enterprises with less industry competition,and enterprises with lower marketization,the laxation of tax administration will reduce their investment efficiency.Under the premise of limited personnel and law enforcement costs,the tax authorities should pay more attention to such types of enterprises,and only in this way can the effective allocation of law enforcement resources be realized.