Premium
Government Size and Tax Evasion: Evidence from C hina
Author(s) -
Li Lixing,
Ma Guangrong
Publication year - 2015
Publication title -
pacific economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.34
H-Index - 33
eISSN - 1468-0106
pISSN - 1361-374X
DOI - 10.1111/1468-0106.12110
Subject(s) - tax evasion , economics , profit (economics) , government (linguistics) , corporate governance , evasion (ethics) , monetary economics , public economics , microeconomics , finance , linguistics , philosophy , immune system , immunology , biology
This paper investigates how government size affects tax evasion in C hina. Using matched county‐firm data for 1998–2005, we estimate the impact of county government size on the relationship between a firm's reported profit and imputed profit based on the national income accounts. A larger government is found to be correlated with more severe tax evasion, especially for state‐owned and collectively‐owned firms. Such an effect is stronger when local governance become worse. This paper shows that a large government does not bring about a strong state capacity to enforce tax rules at the local level in C hina.