Tax collector or tax avoider? An investigation of intergovernmental agency conflicts

Tanya TANG, Phyllis Lai Lan MO, Koon Hung CHAN

Research output: Journal PublicationsJournal Article (refereed)peer-review

89 Citations (Scopus)


Local governments play dual, but conflicting, roles in China's tax system. That is, they are both tax collectors and controlling shareholders of firms subject to tax payments. We investigate how local governments balance their tax collection and tax avoidance incentives. We find that the conflicts between central and local governments arising from the 2002 tax sharing reform have led to more tax avoidance by local government-controlled firms, particularly when the local government's ownership percentage of the firms is higher than the tax sharing ratio. We also find evidence that the overall level of tax avoidance by local government-controlled firms in a region is positively associated with local fiscal deficits. As a high level of government ownership of corporations and intergovernmental tax sharing are common phenomena in many transitional economies, this study offers valuable insights into how the dual roles played by local governments affect tax policy enforcement in these economies.
Original languageEnglish
Pages (from-to)247-270
Number of pages24
JournalThe Accounting Review
Issue number2
Publication statusPublished - Mar 2017


  • agency theory
  • intergovernmental agency conflicts
  • tax avoidance
  • tax collection
  • tax policy enforcement
  • tax sharing reform

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