The impact of political connections on corporate tax burden: Evidence from the Chinese market

This paper investigates how political connections affect corporate tax burden. We construct two multi-tiered political connections series and employ the Propensity Score Matching approach. We find that stronger political connections lead to a lower corporate tax burden in Chinese listed firms. Specifically, the nominal (effective) tax rate decreases by an average of 1.03% (0.33%) as the hierarchical position of Chairman or CEO in the government rises by one rank (e.g., from a sub-provincial to provincial minister), and by an average of 0.99% (0.98%) as the administrative level of the government where the Chairman or CEO holds the position rises by one level (e.g., from a provincial to a central government). Our further analysis shows that political connections reduce the tax burden for both SOEs and non-SOEs, especially for the latter.