Research On Government Governance And Corporate Tax Avoidance From The Perspective Of Public Policy

Taxation is the most important source of fiscal revenue for the government.Meanwhile,it is also an important cost for enterprises.The contradiction between enterprise tax aggressive behaviors and government tax loss is a long-standing issue.At present,the Chinese economy has shifted to the "New Normal",and the government faces heavy pressure on fiscal revenue growth.The aggressive corporate tax avoidance will exacerbate the contradiction between financial revenue and expenditure,and affect the transformation process of government functions and the advancement of government governance reform.Then,this influence will transmit to the process of comprehensively deepening reforms.Therefore,the examination of the relationship between government governance and corporate tax avoidance is the realistic need to coordinate the relationship between government and enterprises in reality.Theoretically,under the interactive effect of external institutional background and internal governance structure,corporate tax avoidance is unable to omit government factors based on the expected utility theory or principal-agent theory.The implementation of public policy reflects the willingness and ability of the government to manage social and public affairs.The realistic demand and theoretical developing characteristics of corporate tax avoidance research provide the motivation and feasibility for this paper,to explore the relationship between government governance and corporate tax aggressive behavior from the perspective of public policy.Based on the literature of government governance and corporate tax avoidance,this paper uses expected utility theory,principal-agent theory and governance theory,and follows the research pattern of “theoretical analysis——empirical test—— policies discussion”,and combines with the efficiency of the implementation of public policies in China,to study the mechanism of the effect of government governance on the corporate tax behavior: that is a sum of market regulating effect and agency constraining effect.Then,separately discuss the specific impacts of government governance on corporate tax avoidance from the perspective of public policy on different dimensions.Main findings are as follows.First,the government's clean governance,which is based on anti-corruption policies,can effectively constrain corporate tax avoidance.Realizing the modernization of clean governance is an inevitable requirement to promote the modernization of national government,and the primary work is to solve the problem of government corruption.An analysis of China's listed firm data during the period of 2008–2015 reveals that the anti-corruption policy constrains corporate tax avoidance behavior after controlling various factors at the firm and region levels.The inhibiting effect is more significant for listed firms in high-corrupted regions with greater government subsidies.The results indicate that the implementation of anti-corruption policies can limit aggressive corporate tax avoidance by weakening the government–enterprise relation.Furthermore,the inhibiting effect of anti-corruption policy on corporate tax avoidance is more pronounced among small firms,non-high-tech firms,and those located in strong tax-collecting regions compared with large firms.This not only indicates that the government's clean government governance has an impact on corporate tax behavior decisions,but also provides indirectly evidence to support that government officials' corruption will weaken the corporate governance mechanism.Second,the government's tax governance,which is based on the taxation reform of BT to VAT,can effectively curb the corporate tax avoidance.The BT-VAT policy implementation is one of the important policies that deepened the structural reforms on the supply side and established a modern taxation system in China.With a set of DDD approaches established,the data of A-share listed firms in the construction and service industries are used to explore the impact of the BT-VAT policy on corporate tax avoidance.A negatively significant relationship is found between the BT-VAT policy implementation and corporate tax avoidance,and the BT-VAT policy can inhibit the incentive of corporate tax avoidance to a certain extent by reducing the tax burden of firms.Robustness tests support the constraining effect on corporate tax avoidance.The cross-sectional analyses show that the effect is more pronounced among private and small firms and those located in financially developed regions.Further analyses show that the tax reduction effect of the policy could constrain corporate tax avoidance by easing the financial constraints of firms rather than by strengthening regional tax administration.This finding indicates that tax cuts could play an externally effective role in mitigating corporate financial constraints to a certain extent.Third,the labor protection policies of government,which is based on the Labor Contract Law(LCL),can effectively inhibit corporate tax avoidance.After controlling other factors,enforced labor protection caused by the compulsory implementation of the LCL is found to be negatively significant with the extent of corporate tax avoidance.This result is derived from the employee benefit-sharing effect,which means that the LCL implementation intensifies the employee bargaining power and stimulates their rent-seeking behavior to acquire shares from tax avoidance.In turn,this constrains rational managers from tax avoidance because of the reduction of marginal benefits.Further tests show that the constraining effect of labor protection on tax avoidance is more pronounced among SOEs,large firms,and firms located in regions with strong law enforcement.The results in this chapter provide empirical evidence of the relationship between government labor protection and corporate tax decision making,which suggests the role of government governance in the distribution of tax avoidance benefit within firms.Finally,the influences of the government governance on corporate tax behavior not only come from the tax administration,but also from various areas where it plays the role of governance.In general,the government can make a certain impact on corporate taxation decisions when implementing its political,economic,and social functions.This paper has enriched the research about the influence of institutional environment on the decision making of corporate tax behavior.The policy suggestions proposed here are: for enterprises,government governance can mitigate agency conflicts,improve the external governance mechanism of enterprises,and reasonably guide tax compliance;for the government,it can helps guarantee the tax revenue,transform government functions and promote the modernization of government governance.