Taxational resource curse – evidence from China

This project investigates discretionary tax enforcement as a channel of a notorious resource volatility curse. In developing countries, tax enforcement may vary in the opposite direction to the variation in tax base. This implies that in resource-abundant regions, effective tax rates of non-resource firms are also affected by economic fluctuations in resource sectors.

China divides firms into mining and non-mining sectors. Project leader Dr Shawn Xiaoguang Chen is exploring how a bigger fluctuation in China’s mining sector profitability translates into a greater volatility of effective tax rates on the non-mining firms. Further evidence uncovered by this project to date suggests the high volatility of taxation harms the non-mining sectors, leading to fewer organisations overall, with the smaller ones finding it hard to survive.