Public versus private firm responses to the tax rate reduction in China
Document Type
Journal article
Source Publication
Journal of the American Taxation Association
Publication Date
Spring 1-1-2014
Volume
36
Issue
1
First Page
137
Last Page
163
Keywords
Discretionary accruals, Financial reporting incentives, Firm ownership, Tax costs
Abstract
This study examines how public and private firms in China respond to the 2008 statutory tax rate reduction from 33 percent to 25 percent. Using a proprietary dataset of private firms, we find that private firms report significantly more incomedecreasing current accruals than do public firms in 2007, the year prior to the tax rate reduction. These negative accruals were substantial and material, both compared with public firms and compared with 2008 accruals. By shifting their taxable income from a high- to a low-tax year, private firms save about 8.58 percent of their total tax expenses in 2007. Our results suggest that countries contemplating tax rate changes should expect material inter-temporal income shifting by private firms when they predict the short-term effects of changes in the tax rate on revenue.
DOI
10.2308/atax-50618
Print ISSN
01989073
E-ISSN
15588017
Publisher Statement
Copyright © 2014 American Accounting Association
Access to external full text or publisher's version may require subscription.
Full-text Version
Publisher’s Version
Language
English
Recommended Citation
Lin, K. Z., Mills, L. F., & Zhang, F. (2014). Public versus Private Firm Responses to the Tax Rate Reduction in China. Journal of the American Taxation Association, 36(1), 137-163. doi: 10.2308/atax-50618