Does VAT retention rate affect firms’ capacity utilization? Evidence from China
Value-added tax (VAT) is shared between central and local governments, and is levied based on firms' production location, which provides incentives for local governments to intervene in firms' production. This paper investigates how local governments' VAT retention rate affect firms&#...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
KeAi Communications Co. Ltd.
2021-12-01
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| Series: | China Economic Quarterly International |
| Subjects: | |
| Online Access: | http://www.sciencedirect.com/science/article/pii/S2666933121000514 |
| _version_ | 1797976464589586432 |
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| author | Longjian Yang Shigang Li Shengyu Liu Heng Yin |
| author_facet | Longjian Yang Shigang Li Shengyu Liu Heng Yin |
| author_sort | Longjian Yang |
| collection | DOAJ |
| description | Value-added tax (VAT) is shared between central and local governments, and is levied based on firms' production location, which provides incentives for local governments to intervene in firms' production. This paper investigates how local governments' VAT retention rate affect firms' capacity utilization theoretically and empirically. We find that the more VAT retained by local governments', the lower the firm's capacity utilization. Our findings suggest the fiscal and taxation system reform should correct local governments' improper incentives and eliminate the negative effects of the distorted intergovernmental fiscal relationships on firms. |
| first_indexed | 2024-04-11T04:51:18Z |
| format | Article |
| id | doaj.art-a38fae46fc4348a1a49b4497e947ea8d |
| institution | Directory Open Access Journal |
| issn | 2666-9331 |
| language | English |
| last_indexed | 2024-04-11T04:51:18Z |
| publishDate | 2021-12-01 |
| publisher | KeAi Communications Co. Ltd. |
| record_format | Article |
| series | China Economic Quarterly International |
| spelling | doaj.art-a38fae46fc4348a1a49b4497e947ea8d2022-12-27T04:38:46ZengKeAi Communications Co. Ltd.China Economic Quarterly International2666-93312021-12-0114331343Does VAT retention rate affect firms’ capacity utilization? Evidence from ChinaLongjian Yang0Shigang Li1Shengyu Liu2Heng Yin3School of Public Finance and Taxation, Central University of Finance and Economics, ChinaInternational School of Business and Finance, Sun Yat-sen University, China; Corresponding author.School of Finance, Guangdong University of Finance and Economics, ChinaNational Academy of Development and Strategy, Renmin University of China, ChinaValue-added tax (VAT) is shared between central and local governments, and is levied based on firms' production location, which provides incentives for local governments to intervene in firms' production. This paper investigates how local governments' VAT retention rate affect firms' capacity utilization theoretically and empirically. We find that the more VAT retained by local governments', the lower the firm's capacity utilization. Our findings suggest the fiscal and taxation system reform should correct local governments' improper incentives and eliminate the negative effects of the distorted intergovernmental fiscal relationships on firms.http://www.sciencedirect.com/science/article/pii/S2666933121000514Value-added taxFiscal decentralizationRetention rateCapacity utilization |
| spellingShingle | Longjian Yang Shigang Li Shengyu Liu Heng Yin Does VAT retention rate affect firms’ capacity utilization? Evidence from China China Economic Quarterly International Value-added tax Fiscal decentralization Retention rate Capacity utilization |
| title | Does VAT retention rate affect firms’ capacity utilization? Evidence from China |
| title_full | Does VAT retention rate affect firms’ capacity utilization? Evidence from China |
| title_fullStr | Does VAT retention rate affect firms’ capacity utilization? Evidence from China |
| title_full_unstemmed | Does VAT retention rate affect firms’ capacity utilization? Evidence from China |
| title_short | Does VAT retention rate affect firms’ capacity utilization? Evidence from China |
| title_sort | does vat retention rate affect firms capacity utilization evidence from china |
| topic | Value-added tax Fiscal decentralization Retention rate Capacity utilization |
| url | http://www.sciencedirect.com/science/article/pii/S2666933121000514 |
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