e t e r m i n es Ci t iz e n r u s t : E va l ua t i n g t h e I m pa c t of Ca m paig n s H i g h l igh t i n g Gove r n m e nt R e f o r m S AbstractChina initiated a critical value-added tax reform in 2004. Completed in 2009, it introduced permanent tax credit for rms' investment in xed assets. We use a quasi-experimental design and a unique rm-level dataset covering all sizes of rms across a broad range of sectors and regions between 2005 and 2012, to test whether the reform promoted rms' investment and productivity. We estimate that on average, the reform raised investment and productivity of the treated rms relative to the control rms by 8.8 percent and 3.7 percent, respectively. We also show that the positive eects tend to be strengthened for rms with nancial constraints.

Most analyses of tax evasion examine individual behavior, not rm behavior, given obvious and recognized data issues. We use data from the Business Environment and Enterprise Performance Survey to examine tax evasion at the rm level, focusing on a novel determinant of rm tax evasion: the nancial constraints (or credit constraints) faced by the rm. Our empirical results indicate across a range of alternative specications that more nancially constrained rms are more likely to be involved in tax evasion activities, largely because evasion helps them deal with nancing issues created by nancial and credit constraints. We further show that the eects of nancial constraints are heterogeneous across rm ownership, rm age, and rm size. Lastly, we present some suggestive evidence on the possible channels through which the impact of nancial constraints on rm tax evasion may operate, including a reduction of information disclosure through the banking system, an increase in the use of cash for transactions, and an increase in bribe activities in exchange for tax evasion opportunities.

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This paper aims to provide empirical evidence on the extent and possible channels of tax competition among provincial governments in China. Using a panel of provincial‐level data for 1993–2007, we find strong evidence of strategic tax interaction among provincial governments. Tax policy is approximated by average effective tax rates on foreign investment, taking into account the tax incentives available to foreign investors. In line with the predictions of the theoretical tax competition literature, we also highlight the impact of each province's characteristics (including its size and level of industrialization) on the strategic interaction with its neighbors. Finally, the paper explicitly identifies the establishment of development zones as an important conduit for tax competition among provinces.