| Summary/Abstract |
How will the development of digital finance affect corporate tax compliance? In the digital economic age, this is a crucial issue. Using the 2011–2015 national tax survey database (NTSD) and the Peking University digital finance index, this paper examines the causal relationship between digital finance and small business tax compliance. Our baseline results show that each standard deviation increase in the digital finance index reduces the level of tax noncompliance by 7.5% for small businesses. We exclude the interference of contemporaneous policies, utilize a specification design based on neighboring cities across provincial borders, and employ instrumental variable estimation methods to jointly alleviate concerns about endogeneity. Furthermore, mechanism analysis shows that digital finance impacts small business tax noncompliance by easing corporate financing constraints and capturing tax-related “digital information”. Finally, we analyze the heterogeneous effects of digital finance development. The effects on tax noncompliance are weaker for large firms (placebo group), small businesses supported by the government's industrial policy, and small businesses located in poor credit environment areas.
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