Corporate income tax reform and intra-industry resource reallocation

ABSTRACT

Taxation is a crucial tool for government economic regulation and resource allocation. Our study, using data from the Chinese Industrial Enterprise Database from 1998 to 2010, highlights the significant role of corporate income tax reform in reducing resource misallocation in the industry. Employing the robust Difference-in-Differences method, we empirically confirm this effect. Our mechanism analysis reveals that the reform promotes increased competition among industry firms, resulting in enhanced resource allocation efficiency. These findings emphasize the vital role of tax policy in shaping resource allocation dynamics in Chinese market, underscoring its broader economic significance.

KEYWORDS:

• Corporate income tax reform
• intra-industry resource reallocation
• difference-in-differences method
• competition

JEL CLASSIFICATION:

• O38
• D24
• H23
• H25

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ To avoid the contemporaneous influence of China’s ‘Four Trillion Yuan Stimulus Plan’ in 2010 on resource allocation, this paper conducts empirical analysis using data up to the year 2010.

Additional information

Funding

This work was supported by the Planning Project of Philosophy and Social Science of Guangdong (GD23YYJ21).