Wealth Shifting and Tax Inequality under the Pressure of Tax Budget Growth
The tax budget is an important part of the national budget,directly impacting the government's revenue security and laying the foundation for the government to arrange budget expenditures.At the beginning of each year,the governments at all lev-els in China establish specific tax budget management objectives tailored to regional development needs.Considering the Chinese government's strong emphasis on collecting revenue promptly and fully,whether local governments can achieve their budgeted rev-enue targets is also seen as a rigid constraint.Consequently,the tax budget targets have a profound impact on the tax collection be-havior of governments at all levels.In practical terms,tax authorities regard the degree of completion of tax budgets as the main assessment indicator.Some studies based on the Chinese context have found that regional disparities in tax budget targets correlate with variations in local tax enforcement intensity.Notably,higher targets tend to bolster tax collection efforts,consequently elevat-ing the actual tax burden on enterprises.However,existing studies tend to consider enterprises as a whole and overlook the analy-sis of organizational structures and network connections within enterprises.In contrast to independent companies,group companies possess the capacity to redistribute tax burden across their network of subsidiaries when facing the enforcement pressure brought by tax budget targets,resulting in inequality in tax burden.This paper attempts to investigate the inequality in tax burden between group companies and non-group companies in China through the differences in tax budget targets between regions.This paper begins by calculating the excess tax growth targets for stripping regional economic growth based on manually col-lated Chinese city-level tax budget data.Subsequently,the paper matches it with enterprises'information and the nationwide busi-ness registration data of enterprises.The results show that when the excess tax growth target of the group's parent company is high,the profitability of the parent company will be abnormally low,while subsidiaries in regions with lower targets experience a significant increase in profitability.This illustrates that when the government's tax budget targets are relatively high,local parent companies tend to transfer profits to subsidiaries with lower tax pressure.Mechanism validation reveals that group companies pri-marily achieve profit shifting through related-party transactions of goods.Moreover,since Article 55 of China's new Budget Law introduced in 2015 stipulates that"the governments at various levels shall not assign revenue indexes to departments and units col-lecting budgetary revenues",following the reform,this paper notes a significant decrease in profit-shifting behavior among group companies confronted with excess tax budget growth targets.Finally,at the macro level,this paper also identifies a"Laffer curve"relationship between regional tax targets and tax and fiscal revenues.The possible contributions of this paper lie in three main areas.First,it complements research on budget target management.China's target management system for economic growth,environmental protection and tax collection has gained significant atten-tion,this paper focuses on examining tax targets and introduces the method of calculating excess tax budget growth targets.At the same time,this paper focuses on exploring its impact on profit shifting within group companies,and its findings provide certain in-spiration for improving the budgetary system.Second,it broadens the study of the tax avoidance behavior of group companies.Previous literature often treats enterprises as independent static entities when studying tax avoidance,ignoring the strategic interac-tions within the enterprise network and the spillover effects that exist between regions.This paper focuses on income shifting and tax avoidance of group companies,and extends it to the field of equity of tax burden.Third,it provides theoretical support for im-proving tax collection and management capabilities.Existing literature points out that capital mobility limits the government's abil-ity to collect taxes,because enterprises may migrate from regions with high tax burdens to those with lower tax burdens.Indeed,this paper finds that enterprises can respond to government's taxation through profit shifting in intra-network rather than physical relocation,implying that the government's tax regulatory behavior must be able to penetrate deeper into the network of group com-panies.
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