Government extraction and firm size : Local officials' responses to fiscal distress in China Yu Liu
By: Yu, Liu
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Material type: 
ArticlePublisher: 2018Subject(s): IMPUESTOS LOCALES | REFORMA | INGRESOS FISCALES | EMPRESAS | CHINA
In:
Journal of Comparative Economics v. 46, n. 4, December 2018, p. 1310-1331Summary: This paper studies how government extraction behaviors respond to local fiscal distress in China. We exploit the 2002 Chinese Income Tax Reform which exogenously cut local government revenues from income taxes roughly by half. We find that, when facing fiscal distress, local officials resort to informal taxes, such as fees and levies, instead of formal taxes to supplement revenue. On average, the increase in informal taxes recovered 75 percent of the local government revenue loss due to the reform. The increases are more pronounced along the intensive margin and are primarily driven by more extractions from large firms. We also find that the reform led to reductions in investment and growth rates of small firms and consistently more small firms in the total size distribution.
| Item type | Current location | Home library | Call number | Status | Date due | Barcode |
|---|---|---|---|---|---|---|
| Recursos electrónicos | IEF | IEF | OP 1397/2018/4-1 (Browse shelf) | Available | OP 1397/2018/4-1 |
Disponible únicamente el PDF en el Repositorio de la Biblioteca del IEF con el nombre de: 1397-2018-4LIU.
Resumen
Bibliografía.
This paper studies how government extraction behaviors respond to local fiscal distress in China. We exploit the 2002 Chinese Income Tax Reform which exogenously cut local government revenues from income taxes roughly by half. We find that, when facing fiscal distress, local officials resort to informal taxes, such as fees and levies, instead of formal taxes to supplement revenue. On average, the increase in informal taxes recovered 75 percent of the local government revenue loss due to the reform. The increases are more pronounced along the intensive margin and are primarily driven by more extractions from large firms. We also find that the reform led to reductions in investment and growth rates of small firms and consistently more small firms in the total size distribution.
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