The effect of tax enforcement digitalization on corporate digital transformation: Evidence from China's listed companies

In China, the policy of tax enforcement digitalization has been introduced with the implementation of the CTAIS-3 project. In this policy context, we study the impact of tax enforcement digitization on corporate digital transformation (CDTM) from both theoretical and empirical perspectives. Our results suggest that the introduction of tax enforcement digitalization inhibits CDTM, and further mechanism investigation indicates that this impact is realized through two channels: increasing the tax burden on firms and reducing firms' risk preference. Heterogeneity analysis shows that at the provincial level, the negative impact of tax enforcement digitalization on CDTM is greater in provinces with greater fiscal pressure and worse marketization level. At the firm level, the negative effect of tax enforcement digitalization on CDTM is more significant for firms with lower levels of governance and firms with greater fiscal constraints. In addition, we find that the CTAIS-3 project does help governments to provide more subsidies to innovative firms, but does not further reduce or improve CDTM. Our study reveals the potential economic consequences of the implementation of tax enforcement digitalization policies at the micro-firm level, which provides a useful reference for future tax reforms in developing countries.