Key Industrial Policies, Local Government Behavior And Corporate Tax Burde

Since the 1980 s,promoting industrial upgrading and curbing some of the overcapacity has been one of the challenges facing China’s economic development.Although the market is able to allocate resources to a certain extent,in order to avoid market failure,the government often intervenes to a certain extent to achieve the goal of playing a positive role in coordinating and allocating resources,and industrial policy is one of the important means of government intervention in economic development and transformation.A distinctive feature of China’s industrial policy is the "selective industrial policy",i.e.the government’s choice to replace the market mechanism.It has been proven that in many developed countries,government intervention has successfully contributed to economic growth and has had a positive impact on the transformation of the industrial structure.In China’s unique institutional context,the central government has given local governments a certain degree of economic autonomy,allowing them to have greater independence in economic development and industrial structure upgrading,so that local governments are in fact the direct implementers and promoters of national industrial policies.However,the existing research on industrial policy is still inadequate in terms of the incentives and motivations behind local promotion of national industrial policy,and the current industrial policy led by fiscal subsidies is not only politically inefficient,but also often operates with high institutional constraints.The effect on enterprises is a reduction in their effective tax rate.Based on the above background,the innovation of this paper is to explore the impact of local industrial policy on the effective tax rate of enterprises,using the taxing behaviour of local governments as an entry point.Theoretical and literature analyses suggest that industrial policies can significantly increase the productivity of enterprises,and therefore local governments are faced with a game between fiscal austerity and attracting capital,while choosing to focus on lowering the effective tax rate in industries supported by industrial policies in view of the promotion of officials and the status of private entrepreneurs.Therefore,firstly,this paper investigates the effect of local governments’ industrial policies on the actual tax burden of enterprises by using a theoretical model with the changes in the division of key industries in the central government’s Five-Year Plan.Secondly,the implementation of the "Golden Tax Phase III" project is used to demonstrate that local governments will reduce the tax burden of enterprises through the path of lowering their levy and administration efforts.Finally,a heterogeneity analysis of the relationship between government and enterprises and the financial strength of local governments is conducted to further test the validity of the hypothesis.This paper assumes that the effective tax rate of enterprises supported by local government industrial policies is significantly lower than that of enterprises not supported by such policies.This paper measures industrial policies by using national and local "five-year plans" to classify key industries for A-share listed non-financial enterprises from 1999 to 2016,and empirically investigates the theoretical hypothesis using progressive DID(multi-temporal DID).(1)Local industrial policies significantly reduce the effective tax rate of supported industries and thus reduce the tax burden of enterprises,and the magnitude of the reduction in tax rate is closely related to the local government’s fiscal revenue.Further analysis suggests that the reduction in tax rates for supported enterprises is achieved through a reduction in tax collection efforts by the government,thereby increasing the level of tax avoidance by enterprises.(2)Industries selected for encouragement by both the national and local governments experienced a greater reduction in effective tax rates than those supported by local industrial policy alone.This suggests that by enjoying both central and local government support,not only do they enjoy the subsidies and facilities provided by the local government,but they also enjoy the policy dividends at the national level.(3)The existence of a government-enterprise relationship has a positive impact on the support that enterprises receive from local industries.Enterprises that are also supported by industrial policies and have political connections are subject to a greater reduction in the effective tax rate of the enterprise.On the basis of these conclusions,this paper puts forward corresponding policy recommendations:(1)Formulate industrial policies that take into account the strengths and capabilities of localities themselves.(2)Strengthen the regulation and management of local government actions.(3)Optimize the business environment for enterprises.(4)Improve the evaluation mechanism for the promotion of officials.(5)Use emerging technologies to improve tax collection and management.