Are foreign firms favored in China? Firm-level evidence on the collection of value-added taxes
Research has uncovered the so-called foreign-ownership bias in China – persistent and sizable policy-induced advantages conferred on foreign firms at the expense of domestic private firms. This article examines the presence of such biases in regulatory implementation, as revealed in the different ac...
| Main Authors: | , |
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| Other Authors: | |
| Format: | Article |
| Language: | English |
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Springer Science and Business Media LLC
2021
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| Online Access: | https://hdl.handle.net/1721.1/129747 |
| _version_ | 1826196997034475520 |
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| author | Huang, Yasheng Tang, Heiwai |
| author2 | Sloan School of Management |
| author_facet | Sloan School of Management Huang, Yasheng Tang, Heiwai |
| author_sort | Huang, Yasheng |
| collection | MIT |
| description | Research has uncovered the so-called foreign-ownership bias in China – persistent and sizable policy-induced advantages conferred on foreign firms at the expense of domestic private firms. This article examines the presence of such biases in regulatory implementation, as revealed in the different actual value-added tax (VAT) incidence borne by foreign versus domestic firms. Using comprehensive Chinese manufacturing firm data, we find that within an industry, the de facto VAT rates facing foreign firms are on average 2 percentage points lower than those of domestic private firms. The finding of this “VAT discount” for foreign firms is robust to controlling for a host of firm characteristics and to using alternative definitions of foreign ownership. We rule out various economic motivations, such as the technology-seeking motive, and show indirect evidence that the ownership bias is intended to protect state-owned enterprises. Further research is needed to precisely pin down the underlying motivations and mechanisms. |
| first_indexed | 2024-09-23T10:41:08Z |
| format | Article |
| id | mit-1721.1/129747 |
| institution | Massachusetts Institute of Technology |
| language | English |
| last_indexed | 2024-09-23T10:41:08Z |
| publishDate | 2021 |
| publisher | Springer Science and Business Media LLC |
| record_format | dspace |
| spelling | mit-1721.1/1297472022-09-27T14:14:22Z Are foreign firms favored in China? Firm-level evidence on the collection of value-added taxes Huang, Yasheng Tang, Heiwai Sloan School of Management Research has uncovered the so-called foreign-ownership bias in China – persistent and sizable policy-induced advantages conferred on foreign firms at the expense of domestic private firms. This article examines the presence of such biases in regulatory implementation, as revealed in the different actual value-added tax (VAT) incidence borne by foreign versus domestic firms. Using comprehensive Chinese manufacturing firm data, we find that within an industry, the de facto VAT rates facing foreign firms are on average 2 percentage points lower than those of domestic private firms. The finding of this “VAT discount” for foreign firms is robust to controlling for a host of firm characteristics and to using alternative definitions of foreign ownership. We rule out various economic motivations, such as the technology-seeking motive, and show indirect evidence that the ownership bias is intended to protect state-owned enterprises. Further research is needed to precisely pin down the underlying motivations and mechanisms. 2021-02-11T21:42:44Z 2021-02-11T21:42:44Z 2018-05 2018-03 2021-02-10T15:59:10Z Article http://purl.org/eprint/type/JournalArticle 2522-0691 2522-0705 https://hdl.handle.net/1721.1/129747 Huang, Yasheng and Heiwai Tang."Are foreign firms favored in China? Firm-level evidence on the collection of value-added taxes." Journal of International Business Policy 1, 1-2 (May 2018): 71–91 © 2018 The Author(s) en http://dx.doi.org/10.1057/s42214-018-0006-z Journal of International Business Policy Creative Commons Attribution 4.0 International license https://creativecommons.org/licenses/by/4.0/ application/pdf Springer Science and Business Media LLC Springer |
| spellingShingle | Huang, Yasheng Tang, Heiwai Are foreign firms favored in China? Firm-level evidence on the collection of value-added taxes |
| title | Are foreign firms favored in China? Firm-level evidence on the collection of value-added taxes |
| title_full | Are foreign firms favored in China? Firm-level evidence on the collection of value-added taxes |
| title_fullStr | Are foreign firms favored in China? Firm-level evidence on the collection of value-added taxes |
| title_full_unstemmed | Are foreign firms favored in China? Firm-level evidence on the collection of value-added taxes |
| title_short | Are foreign firms favored in China? Firm-level evidence on the collection of value-added taxes |
| title_sort | are foreign firms favored in china firm level evidence on the collection of value added taxes |
| url | https://hdl.handle.net/1721.1/129747 |
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