TY  - JOUR
AU  - Whalley,John
AU  - Wang,Li
TI  - The Unified Enterprise Tax and SOEs in China
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12899
PY  - 2007
Y2  - February 2007
UR  - http://www.nber.org/papers/w12899
L1  - http://www.nber.org/papers/w12899.pdf
N1  - Author contact info:
John Whalley
Department of Economics
Social Science Centre
University of Western Ontario
London, ON N6A 5C2
CANADA
Tel: 519/661-3509
Fax: 519/661-3666
E-Mail: jwhalley@uwo.ca

Li Wang
No. 5 Jianguomennei Street
Division of Modelling and Policy Analysis
Institute of Quantitative and Technical Economics
Chinese Academy of Social Sciences
Beijing, 100732
China
AB  - 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.
ER  -