Tax Administration Digitization and Corporate Tax Avoidance: A Quasi-Natural Experiment Based on the Golden Tax III Project in China

Abstract

This paper contributes to the literature by exploring the governance effect of tax administration digitization on corporate tax avoidance. Using data from 2,032 firms publicly listed in China during 2010 and 2020, our paper is among the first to report that the development of digital technologies such as big data and cloud computing has a restraining effect on corporate tax avoidance behavior. Our study is based on the Golden Tax III project implemented by the Chinese government from 2013 to 2016 as a quasi-natural experiment. Our time-varying difference-in-differences (DID) model shows that the digitization of tax collection and management effectively reduces corporate tax avoidance behavior. Moreover, this impact is larger for private firms, firms in regions with low financial development, firms with low auditor quality, and firms with low internal control quality. Our results are robust to parallel trend tests, placebo tests for causal inference, alternative measures of tax avoidance, and other tax-related policy specifications. Our findings suggest that governments should continue to promote digitization of tax administration, create a fair business environment for the development of private enterprises, deepen market-oriented reform in regions with low financial development, and improve the internal control mechanisms of publicly listed firms. JEL Classification: H26; H32; G30