Collusion, Political Connection, and Tax Evasion

Upon studying listed firms in China, this paper provides evidence of government-firm collusion. We argue that political turnover of local leaders serves as exogenous shocks to existing collusion, so the detected reduction of firm tax evasion in response to political turnover could be interpreted as...

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Bibliographic Details
Published in:Proceedings (Conference on Taxation) 2019-01, Vol.112, p.1-36
Main Authors: Tsai, Pi-Han, Liu, Yongzheng, Liu, Xin
Format: Article
Language:English
Subjects:
Tax Compliance
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Summary:Upon studying listed firms in China, this paper provides evidence of government-firm collusion. We argue that political turnover of local leaders serves as exogenous shocks to existing collusion, so the detected reduction of firm tax evasion in response to political turnover could be interpreted as evidence of pre-existing collusion. By exploiting variation of costs and opportunities of collusion amongst firms, we further disentangle the effect of collusion from political uncertainty. Lastly, we show that firms’ political connections, capturing by social networks and political ties, stabilize the existing collusion, which helps firms maintain their advantage while facing external political shocks.
ISSN:1549-7542
2377-5661