NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Unified Enterprise Tax and SOEs in China

John Whalley, Li Wang

NBER Working Paper No. 12899
Issued in February 2007
NBER Program(s):   PE

Currently proposals are actively circulating in China to move to a unified enterprise tax structure with similar tax treatment of state-owned enterprises (SOEs), other private enterprises (OPE) and foreign investment enterprises (FIEs). FIEs presently receive significant tax preferences through a sharply lower tax rate, tax holidays and other provisions. Here we use analytical representations of SOE behavior, which differ from that of the competitive firm, to argue that a unified tax structure may not be a desirable tax change and that typically a higher tax rate on SOEs is called for on efficiency grounds. Using a worker control model with endogenously determined shirking, taxes on SOEs reduce shirking and a reduced SOE tax rate under a unified tax relaxes discipline on SOEs and losses result. Our results indicate a 0.26% of GDP welfare loss using 2004 data from a unified tax, and larger loss relative to an optimal tax scheme. Alternatively, if we use a managerial control model variant, we find a 0.19% welfare loss from a unified tax, and larger losses relative to initial higher SOE tax rates.

download in pdf format
   (260 K)

email paper

This paper is available as PDF (260 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12899

Users who downloaded this paper also downloaded these:
Whalley and Zhang w12780 State-Owned Enterprise Behaviour Responses to Trade Reforms: Some Analytics and Numerical Simulation Results Using Chinese Data
Aizenman and Geng w15274 Adjustment of State Owned and Foreign-Funded Enterprises in China to Economic Reforms,1980s-2007: a logistic smooth transition regression (LSTR) approach
Whalley and Wang w13581 Evaluating the Impure Chinese VAT Relative to a Pure Form in a Simple Monetary Trade Model with an Endogenous Trade Surplus
Li and Whalley w16686 Rebalancing and the Chinese VAT: Some Numerical Simulation Results
Li and Lui Why Do Governments Dump State Enterprises?Evidence from China
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us