Government Governance and Corporate Tax Avoidance: An Empirical Study from the Public Policy Perspective


Student thesis: Doctoral Thesis

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Awarding Institution
Award date14 Aug 2019


Taxation is, on one hand, the most important source of fiscal revenue for the government and, on the other hand, a considerable cost for enterprises. This thesis attempts to investigate several new explanations regarding the relationship between the government and firms from the aspect of corporate tax avoidance.

On the basis of literature on government governance and corporate tax avoidance, this thesis uses expected utility, principal–agent, and governance theories, combined with the efficient implementation of public policies in China, to study government influence on corporate tax avoidance behavior. The basic findings are as follows.

Government governance, as a role of external corporate governance, can constrain corporate tax avoidance behavior from three specific aspects. From the political dimension, corruption governance (implementation of anti-corruption policy) reduces the opportunities for tax avoidance by limiting the political rent-seeking behavior of firms. From the economic dimension, taxation reform (replacement of business tax with value-added tax) weakens the incentive of tax avoidance by lowering corporate tax burdens and alleviating financial constraints. From the dimension of social security, labor protection (Labor Contract Law) reduces corporate tax avoidance. As such, the employees protected by law can obtain a share of the self-interest gained by employers from tax sheltering, weakening the aggressive incentive of rational managers.

The political implications are as follows. For enterprises, government governance can mitigate agency conflicts, improve their external governance mechanism, and reasonably guide tax compliance. For the government, improving government governance can help guarantee tax revenue, transform government functions, and promote the modernization of government governance.

    Research areas

  • Tax Avoidance, Government Governance, Public Policy, Anti-corruption, Tax Reform, BT-VAT, Labor Protection, Labor Contract Law