Does the Tax Cuts Policy Lower Firm Survival Risk? Evidence from China

Abstract

This paper examines the effect of tax cuts policy on firm survival risk. We analyze a panel data of China’s listed companies over the period 20082021 based on two different techniques: Kaplan-Meier survival estimator and the Cox proportional hazards model. Our findings reveal that the tax cuts policy has positive and significant effect on improving firms’ survival probabilities. Moreover, compared with the income tax cuts, the value-added tax cuts play a more effective role on improving firms’ survival probability. By dividing firm locations into different regions, we also find that the tax cuts policy exerts a positive influence on firms’ survival probabilities in eastern region, while the positive effect in the central and western regions is relatively weaker. From the perspective of profitability heterogeneity, the results show that the beneficial effect from tax cuts policy on firm survival is more pronounced for firms with weaker profitability.

Keywords

• taxation
• failure rate
• cox proportional hazards model