Journals Proceedings

Abstract

This paper analyzes the effect of government intervention on firms’ tax avoidance behaviors. Using Chinese data, we test this relation by measuring government intervention at three levels. First, we compare tax avoidance behavior between state-owned enterprises (SOEs) and non- state-owned enterprises (non-SOEs) and find that the sensitivity of tax avoidance is significantly stronger for SOEs. Second, we measure government intervention by two province-level National Economic Research Institute (NERI) index and discover that firms in regions with low level of marketization which means more government interventions are more likely to pursue tax avoidance. Third, we draw a sub-sample and divide all SOEs into central SOEs and local SOEs, and it seems that the former are more tax aggressive than the latter. Overall, tax avoidance patterns can probably be explained by the degree of government intervention, that is, more government intervention through no matter state ownership or institutional environment will lead to more tax avoidance.