“Measuring the Impact of Profit Taxes on the Productivity of State-Owned Enterprises Using Differential Timing of a Chinese Tax Reform” by Zhigang LI
University of Hong Kong
This study provides new econometric evidence for the effect of profit-sharing on the productivity of state-owned enterprises (SOEs). The idea of identification is to utilize a Chinese tax reform that imposed a profit tax on a fraction of SOEs in 1984 (with arguably exogenous selection of firms). Employing a rich panel data set of SOEs between 1981 and 1989 in China, I find that the adoption of the profit tax scheme lowered the productivity of SOEs. Evidence further suggests that this effect took place through reducing retained profits and changing the employee compensation structure.