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Tax Enforcement and Corporate Social Responsibility: Evidence from a Natural Experiment in China

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  • Jiangyuan Wang
  • Da Ke
  • Xingjian Lai
Abstract
This study investigates the effect of tax enforcement on corporate social responsibility (CSR) performance. By using the Third Phase of China’s Golden Tax Project as an exogenous shock to conduct a difference–in–differences estimation, we find that tax enforcement has a sizable positive effect on CSR performance, which is mainly achieved through improving the performance of corporations in fulfilling their responsibilities to their employees, suppliers, customer and consumer rights, and the environment. Our findings are robust to different specifications and endogeneity problems. One possible mechanism driving our results is that tax enforcement reduces corporate tax evasion, which further promotes CSR performance. Our results are particularly significant for firms in highly competitive industries or firms with high levels of business risk. Furthermore, the improved CSR performance influenced by tax enforcement ultimately increases the total factor productivity, market value, and shareholder returns of firms.

Suggested Citation

  • Jiangyuan Wang & Da Ke & Xingjian Lai, 2023. "Tax Enforcement and Corporate Social Responsibility: Evidence from a Natural Experiment in China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 59(2), pages 542-560, January.
    • Handle: RePEc:mes:emfitr:v:59:y:2023:i:2:p:542-560
    DOI: 10.1080/1540496X.2022.2097066
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    Cited by:

    1. He, Yuhan & Yi, Yang, 2023. "Digitalization of tax administration and corporate performance: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 90(C).
    2. Liyuan Meng & Yuchen Zhang, 2023. "Impact of Tax Administration on ESG Performance—A Quasi-Natural Experiment Based on China’s Golden Tax Project III," Sustainability, MDPI, vol. 15(14), pages 1-23, July.

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