The role of regional institutional environment in the relationship between political participation and effective tax rates: evidence from Chinese listed private firms before the financial crisis

Using a sample of Chinese listed private firms selected from the period of 1999-2007 before the financial crisis, we investigate that the role of regional institutional environment (RIE) in the relationship between political participation (POLP) and effective tax rates (ETR). We find that the correlation between POLP and ETR depends on RIE, which can be characterized in two ways: marketization and corruption levels; and in particular, a statistically significant positive relation is shown to exist between POLP and ETR among firms located in regions with low corruption levels, and so does a statistically significant negative correlation among firms located in regions with high corruption levels. Correlations of opposite nature exist if the marketization level is concerned, but the relations are not as strong as in the case of corruption level.