Title

Tax collector or tax avoider? An investigation of intergovernmental agency conflicts

Document Type

Journal article

Source Publication

The Accounting Review

Publication Date

3-2017

Volume

92

Issue

2

First Page

247

Last Page

270

Publisher

American Accounting Association

Keywords

intergovernmental agency conflicts, agency theory, tax sharing reform, tax avoidance, tax collection, tax policy enforcement

Abstract

Local governments play dual, but conflicting, roles in China's tax system. That is, they are both tax collectors and controlling shareholders of firms subject to tax payments. We investigate how local governments balance their tax collection and tax avoidance incentives. We find that the conflicts between central and local governments arising from the 2002 tax sharing reform have led to more tax avoidance by local government-controlled firms, particularly when the local government's ownership percentage of the firms is higher than the tax sharing ratio. We also find evidence that the overall level of tax avoidance by local government-controlled firms in a region is positively associated with local fiscal deficits. As a high level of government ownership of corporations and intergovernmental tax sharing are common phenomena in many transitional economies, this study offers valuable insights into how the dual roles played by local governments affect tax policy enforcement in these economies.

DOI

10.2308/accr-51526

Print ISSN

00014826

E-ISSN

15587967

Funding Information

Phyllis Lai Lan Mo acknowledges partial financial support from City University of Hong Kong (Project No. 7004554). K. Hung Chan also acknowledges partial financial support of this research from the Hong Kong Institute of Business Studies (HKIBS) of Lingnan University. {7004554}

Publisher Statement

Copyright © 2017 American Accounting Association. All rights reserved. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Recommended Citation

Tang, T., Mo, P. L. L. & Chan, K. H. (2017). Tax collector or tax avoider? An investigation of intergovernmental agency conflicts. The Accounting Review, 92(2), 247-270. doi: 10.2308/accr-51526

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