The effects of government ownership and the global financial crisis on implicit taxes of Chinese companies

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The government has implemented various tax incentive policies to support the generation and growth of corporate profits, leading to what is known as an implicit tax. In actuality, there is no implicit tax phenomenon because this phenomenon occurs in a perfectly competitive market where there are no barriers to entry, transaction costs, or transaction friction. Since most Chinese companies are owned by the Chinese government and are not fully capitalist markets, the possibility of more implicit taxes is not expected to occur. Therefore, the purpose of this study is to investigate whether the Chinese government’s ownership of enterprises and the global financial crisis have had an effect on the realization of the implicit tax phenomena. The results of this study are as follows. First, the pre-tax return on equity (PTROE) of listed Chinese companies had a statistically significant positive relationship with the pre-tax subsidy on equity (PTSE). Second, for companies with a higher level of Chinese government-owned interest, PTROE had a statistically significant positive relationship with PTSE; so this result shows that Chinese companies receive tax benefits, but an implicit tax in the market is not realized. Third, during the global financial crisis, the PTROE of Chinese companies showed an insignificant negative relationship with PTSE. In addition, companies owned by the Chinese government showed an insignificant negative relationship between PTROE and PTSE during the global financial crisis. This study provides policy implications that government ownership equity and macroeconomic events influence the level of freedom in a market economy.

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    • Table 1. Distribution of samples
    • Table 2. Descriptive statistics
    • Table 3. Correlation analysis
    • Table 4. Regression results: effects of governmental ownership on the realization of an implicit tax
    • Table 5. Regression results: effects of the global financial crisis on the realization of an implicit tax
    • Table 6. Regression results: effects of governmental ownership and the global financial crisis on the realization of an implicit tax
    • Project administration
      SungMan Yoon
    • Resources
      SungMan Yoon
    • Software
      SungMan Yoon
    • Supervision
      SungMan Yoon
    • Writing – review & editing
      SungMan Yoon
    • Conceptualization
      Di Qu
    • Data curation
      Di Qu
    • Formal Analysis
      Di Qu
    • Investigation
      Di Qu
    • Methodology
      Di Qu
    • Writing – original draft
      Di Qu