Research

Draft available on request 

Draft available on request 

This paper studies tax incidence on its own product and close substitutes in a multi-product oligopoly setting. We study a tax change in China's car market that lowers the tax rate from 10% to 5% for cars with small engines. Using transaction-level tax administrative data we show that consumer price for small cars drops by approximately 4.2% and their competitors' price also dropped by 0.6%. We consider the pass-through on close substitutes in a multi-product oligopoly setting where firms need to take cannibalization effect into consideration when they respond to a tax change on some of their product. Our analysis shows that firm specic inter product substitution pattern and market share of the target product matters for the incidence of its substitutes.

This paper exploits a tax reform on manufacturing firms in China to study the impact of taxes on firm innovation. The reform switched the corporate income tax collection from the local to the state tax bureau and reduced the effective tax rate by 10%. The reform only applied to firms established after January 2002, allowing us to use regression discontinuity design as the identification strategy. The results show that lower taxes improved both quantity and quality of firm innovation. Moreover, the reform has a bigger impact on firms that are financially constrained and firms that engage more in tax evasion. 

We study the impact of indirect tax salience on preferences for tax progressivity. We conduct a survey experiment in China and remind the respondents about the burden of indirect tax. We find the information treatment generates large heterogeneous effects in preference toward a more progressive tax schedule: High income people become less supportive while low income people become more supportive to tax progressivity. Such divergence effects in social opinions should be taken into account in making relevant tax design decisions.

This paper investigates the causal impact of audits on tax compliance by exploiting a threshold-based value-added tax (VAT) desk audit program in China. All firms below the VAT-to-sales ratio threshold are contacted by the tax authority and must justify their tax returns through self-audits. We estimate the audit effect using the National Tax Survey Database and a regression discontinuity design. We find that desk audits recovered a significant amount of tax revenues, and audited firms reported more output taxes and input tax credits in the subsequent two years despite no changes in real production. A portion of the increased input tax credit is attributed to the acquisition of fake invoices. Interestingly, larger taxpayers remit less VAT after the audit. The audit triggers more aggressive tax planning by large firms. They use more intrafirm transactions to avoid VAT, with a more significant impact among those with an expansive subsidiary network.

Policy diffusion based on learning mechanisms has fascinated political science and public administration scholars for a long time. A robust and growing body of studies have identified the existence and importance of learning mechanisms in policy diffusion. However, there are still some gaps that need to be further improved. First, scholars identify the learning mechanism mainly based on indirect evidence, such as geographical proximity and successful innovation policies adopted by other jurisdictions, which lacking direct and systematic evidence. Second, little is known about how the hierarchical power structure affects the leap from learning behavior to policy adoption. This study provides direct evidence for the promoting effect of intergovernmental learning on policy diffusion by analyzing case of Chinese local financial subsidy policies for new energy vehicles. The empirical results reveal that policy learning in the form of site visits among local governments significantly promotes the policy diffusion, but superior government policy strategy attenuates the influence of interlocal learning on policy diffusion. Also, the initiators and themes of policy learning affect the learning–diffusion linkage, portraying the conditional effects and nuanced dynamics of interlocal policy learning in eliciting policy diffusion.

We investigate the impact of COVID-19 lockdown on labor market gender differences using a unique dataset of job postings and job applicants in China. We find a “she-cession” in both the national lockdown period (the short run) and afterward (the medium run). Compared to the pre-COVID level, job postings in female (male) dominated industries on average decreased by 38.87 % (37.62 %) and 30.93 % (24.32 %) in the short and medium run, respectively, demonstrating a persistently widening gender gap in labor demand. On the labor supply side, the number of female (male) job applicants decreased by 30.28 % (27.04 %) in the short run but increased by 20.83 % (17.62 %) in the medium run, showing that females search for jobs more actively than males did when the national lockdown was lifted. Hence, the she-cession in China becomes more severe in the post-lockdown period, as more females are competing for fewer available positions. Reduced job openings in contact-intensive industries, unequal intra-household division of childcare responsibilities, and decreases in family savings all contribute to these patterns. Our results have general implications for understanding labor market gender differences in public health crises and economic downturns.

This paper studies the impact of foreign direct investment on domestic firms’ innovation in China. It provides causal evidence by exploiting China’s foreign direct investment deregulation in 2002 and employs a difference-in-difference estimation strategy. Using a matched firm-patent data set from 1998 to 2007, the results show that the quantity and quality of domestic firms’ innovation benefit from foreign direct investment. Moreover, the paper emphasizes the importance of knowledge spillover from foreign direct investment in similar technology domains. The analysis examines the role of horizontal foreign direct investment and foreign direct investment in technologically close industries—industries that share similar technology domains. The findings show that foreign direct investment in technologically close industries generates much bigger positive spillovers than horizontal foreign direct investment. The paper also shows that knowledge spillover from foreign direct investment in similar technology domains is not driven by input-out linkages. Moreover, the spillover effect is stronger in cities with higher human capital stock and firms with higher absorptive capacity.

We study the tax compliance effects of value-added tax (VAT) by exploiting the reform replacing business tax (BT) with VAT in China beginning in 2012. We find that replacing the BT with VAT significantly increases reported sales and reported cost for treated firms, and the impact is much stronger among business-to-business (B2B) transactions than business-to-consumer (B2C) transactions. Buyers in B2B transactions have stronger incentives to claim invoices to credit their output VAT and reduce their tax liabilities. In B2C transactions, individual consumers do not need VAT credit, so the reform has little impact. Moreover, firms report higher costs after the reform to offset their tax liability. The results indicate that VAT has higher tax compliance than a turnover tax and the VAT system has self-enforcing properties in B2B transactions. 

This paper explores the tax compliance effects of adopting advanced information technology by tax bureau. Although many governments adopt advanced information technology in tax collection, little is known about the effect on tax compliance. Using difference-in-differences method, we exploit a staggered reform in which tax authorities adopt a comprehensive information reporting system in China, the Golden Tax Project III. Employing listed firm level data from 2010 to 2017, using book-tax difference and its remaining component which cannot be explained by earnings management as proxy measures of tax sheltering, we find that the adoption of GTP III decreases tax sheltering levels by a 1.88 percentage point. The effect is stronger for companies with higher tax rate. By exploring channels, our results suggest that the effect works by enhancing third-party reporting and by improving tax enforcement capacity in provinces that lack tax inspectors.