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Research Article

Are sales and taxes ‘sticky’? Empirical evidence of the impact of tax enforcement on tax revenue growth in China

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Pages 663-667 | Published online: 29 May 2020
 

ABSTRACT

Despite the global economic downturn, China’s taxation continues to grow rapidly. Although many scholars attribute this phenomenon to macro factors, in this study, we investigate this issue from the perspective of combining enterprises and tax enforcement. Through a regression analysis of data from Chinese listed firms over the 2008–2018 period, we find that tax enforcement can lead to the stickiness of corporate tax expenses, that is, the percentage decrease in tax expenses for a decrease in sales revenue is less than the percentage increase in tax expenses for an equivalent increase in sales revenue. Further analysis shows that tax stickiness exists in multiple taxes, with business tax stickiness being the highest. Tax stickiness provides a new explanation for China’s taxation to maintain rapid growth during economic downturns.

JEL CLASSIFICATION:

Disclosure statement

The authors declare no conflict of interest.

Notes

1 According to data from the National Bureau of Statistics of China, the average annual growth rate of China’s tax revenue during the period of 2008–2018 was 12.02%, while the average annual growth rate of GDP during the same period was 8.12%.

2 China’s current tax system is different from other countries, and 90% of China’s tax revenue comes from corporate taxes. The VAT, IT and BT in corporate tax are the top three in China’s tax revenue, accounting for 27.9%, 19.8% and 15.16%, respectively. Source: Authors based on http://data.stats.gov.cn/easyquery.htm?cn=C01.

3 The sample companies in this study are medium and large enterprises, with an average asset size of 3.785 billion.

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