Politicians’ Ideology, State Intervention, and Corporate Taxation

This paper examines whether and how politicians’ ideologies influence corporate taxation. Our tests exploit the implementation of the 1978 Reform and Opening-up policy in China that significantly weakens the communist ideology. Using textual analyses of city secretaries’ speeches, we first establish that secretaries who joined the communist party after 1978 have a weaker communist ideology. We next show that, in the postreform period, firms in cities whose secretaries joined the communist party after 1978 have significantly lower effective tax rates than those of firms with secretaries joining the communist party beforehand. Further analyses reveal that tax benefit provisions and tax enforcement are the mechanisms through which secretaries’ ideologies influence corporate taxation.

This paper was accepted by Eric So, accounting.

Funding: This work was supported by the Research Grants Council of Hong Kong [General Research Fund 17502219]. K. Na acknowledges financial support from Cheung Kong Graduate School of Business. T. Shevlin acknowledges financial support from the Merage School of Business, University of California-Irvine.

Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2022.03268.