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The minimum wage and corporate tax avoidance

The minimum wage and corporate tax avoidance This paper investigates the impact of the minimum wage (MW) on corporate tax avoidance. By exploiting heterogeneity in the MW level across cities and over time in China, we find that increases in the MW are associated with greater tax avoidance by firms. Our results are robust to the consideration of a sample of contiguous firms in two adjacent cities subject to different MWs, and a difference-in-differences research design that exploits the enactment of the Labor Contract Law in 2008 as an exogenous shock to the MW. In cross-sectional analyses, we find that the positive impact of MWs on tax avoidance is more pronounced for firms with higher labour intensity, greater financial constraints, and less product market power and in regions with laxer enforcement. Our paper suggests that the MW policy imposes substantial, albeit likely unintended, externalities on corporate tax. Our findings can help inform policymakers of more potential implications of MW policies. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting and Business Research Taylor & Francis

The minimum wage and corporate tax avoidance

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Publisher
Taylor & Francis
Copyright
© 2022 Informa UK Limited, trading as Taylor & Francis Group
ISSN
2159-4260
eISSN
0001-4788
DOI
10.1080/00014788.2022.2045893
Publisher site
See Article on Publisher Site

Abstract

This paper investigates the impact of the minimum wage (MW) on corporate tax avoidance. By exploiting heterogeneity in the MW level across cities and over time in China, we find that increases in the MW are associated with greater tax avoidance by firms. Our results are robust to the consideration of a sample of contiguous firms in two adjacent cities subject to different MWs, and a difference-in-differences research design that exploits the enactment of the Labor Contract Law in 2008 as an exogenous shock to the MW. In cross-sectional analyses, we find that the positive impact of MWs on tax avoidance is more pronounced for firms with higher labour intensity, greater financial constraints, and less product market power and in regions with laxer enforcement. Our paper suggests that the MW policy imposes substantial, albeit likely unintended, externalities on corporate tax. Our findings can help inform policymakers of more potential implications of MW policies.

Journal

Accounting and Business Research – Taylor & Francis

Published: Jun 7, 2023

Keywords: Minimum Wage; Tax Avoidance; Labour Cost; E24; H25; J48

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