Politicians' Ideology, State Intervention, and Corporate Taxation

This paper examines the impact of politicians' ideological preferences on corporate taxation. Our tests exploit the implementation of the Reform and Opening-up policy in China in 1978 that significantly weakens the communist ideology. We find that, in the post-reform period, the effective tax rates of firms in cities whose secretaries joined the communist party before the reform, and therefore, were indoctrinated with stronger communist ideology, are significantly higher than those of firms with secretaries joining the communist party after the reform. This effect is weaker for party secretaries close to retirement and for party secretaries with working experience in the central government. Further tests suggest that party secretaries' communist ideology affect corporate taxation through both tax benefit provisions and enforcement of tax rules. A regression discontinuity design approach exploiting the age qualification of party members provides consistent results.