Does industrial policy suppress corporate tax avoidance? —— a study on the perspective of provincial industrial policy

Abstract

ABSTRACT Will industrial policy affect corporate tax avoidance? Based on China’s listed corporations which are in the current stage of industrial transformation and upgrading, this paper investigates how the provincial industrial policy impact corporate tax avoidance. The results show that provincial industrial policy can suppress corporate’s incentive to avoid tax and this relationship is stronger in non-SOE group. Further study finds that the release of provincial policy enhances the prospect of influenced industries, leading the improvement of firm performance, helping firms obtain more government subsidies and bank loans and finally suppress corporate tax avoidance. On the other hand, industrial policy is a crucial channel through which listed firms can build political connections with local government. To maintain the relationship with local government, the affected firms are willing to suppress corporate tax avoidance.