Oliver Zhen Li

With a surge in debt due to a fiscal stimulus after 2008, the Chinese government rolled out a “deleveraging” program in 2015, which, through tightening monetary policies, restricting credit flows, and regulating shadow banks, significantly increased firms’ cost of debt and the incentive to deleverage. We find that high-tax-rate firms reduce leverage to a lesser extent than low-tax-rate firms after the initiation of the deleveraging program. This effect is stronger for nonstate-owned firms and firms with fewer nondebt tax shields. More importantly, by retaining more debt, high-tax-rate firms reduce dividends, switch to equity financing to a lesser extent, and cut fewer investments in fixed assets, R&D and human capital. We conclude that taxes constitute an important factor in shaping the microeconomic consequences of a credit crunch and that economic incentives and property rights interact to affect capital structure.

This paper examines the credit supply-side effect of the U.S. 2003 dividend tax cut on the real economy through the banking sector. We show that C-corporation banks (treatment group), particularly those capital-constrained, increase the supply of small business loans more than S-subchapter banks (control group) following the tax cut, aligning with the old view of dividend taxation and the supply-side effect rooted in credit rationing. Such an enhanced small business loan supply stemming from the tax cut translates into real effects on the economy. We find that areas with a greater presence of C-corporation banks exhibit more small business formations, employment, and innovations. The positive real effects are concentrated in subsamples when business growth opportunities are more abundant or international trade exposures are higher. Overall, our findings add to the literature on the real effects of the tax cut by showing an important yet unexplored bank credit supply channel.

We construct a mourning and funeral index, using online search volume for “wreath and elegiac couplet”, “obituary”, “mortuary house”, “cinerary casket”, “cremation” and “pass away”, to infer excess cases of mortality in China during the COVID-19 pandemic. During the 3-month period (December 2022–February 2023) after China ended its Zero-COVID policy, there were around 712 thousand excess cases of mortality. These excess cases of mortality, bench marked against the 2-year period preceding the pandemic, could be directly or indirectly related to COVID-19. During the 35-month Zero-COVID regime (January 2020–November 2022), the excess death toll was a negative 1480 thousand. Overall, by delaying the surge in infections, China might have saved 767 thousand lives. While these estimates are based on various assumptions and can be imprecise, China’s COVID-19 experience could reasonably be characterized by a sharp surge in deaths after its departure from Zero-COVID and a steady pattern of lives saved during the Zero-COVID regime.

In a tax—public goods reciprocity framework between citizens and the state, managers view taxes as a payment to the government in exchange for public goods, and hence they adjust their willingness to pay taxes as public good quality changes. We show that corporate tax planning intensity increases with ground‐level ozone pollution. Revisions in ozone pollution regulations cause counties that failed the revised and more stringent standards to reduce ozone pollution. Consequently, firms headquartered in these counties reduced corporate tax planning intensity relative to firms in other counties. The ozone‐tax link varies in the predicted directions with public attention to pollution, potential welfare loss due to ozone, managers’ stakeholder orientation, taxpayers’ polluting status, political preferences, and civic norms. We also find consistent results for Superfund cleanups of hazardous waste sites. Our research sheds light on reciprocity as a potential mechanism influencing corporate tax compliance.

What is the role of societal culture in the individualism-collectivism paradigm in pandemic containment? In the prolonged fight against COVID-19, government-initiated non-pharmaceutical interventions critically hinges on citizens’ adherence to these restrictive policies. Using an international setting, this research shows that countries scoring high on individualism generally have a more severe COVID-19 situation throughout the trajectory of the pandemic. This link between individualism and the severity of the virus situation is plausibly due to social non-cooperativeness in individualistic countries which reduces the effectiveness of non-pharmaceutical interventions aimed at mitigating the virus situation. Exploiting cultural disparity in the individualism-collectivism paradigm between former East and West German districts, this research further demonstrates that, after controlling for local characteristics that can affect the pandemic outcome, former East German districts have a less severe COVID-19 situation than former West German districts. Evidence collectively suggests that a greater reluctance among people in more individualistic cultures to heed virus-fighting policies impose a negative public health externality in a pandemic.

We shed light on the importance of government disclosure in public emergency management. During the outbreak of COVID-19, provinces in China entered a government disclosure regime, which mandated the disclosure of the number of people infected with the virus on a daily basis. Each province also voluntarily disclosed its own virus situation. We find that various forms of province-level government disclosure generally reduced the number of trips made by the infected and sped up their diagnosis. They also raised attention paid to the virus and self-protection awareness as well as reduced mobility among the susceptible. Finally, government voluntary disclosure helped to reduce the duration of local epidemics. We conclude that government disclosure can be effective in instilling the correct human behaviors that are conducive to fighting the pandemic.

Utilizing a police dataset of a fundraising Ponzi scheme in China, we establish referrer-investor links and examine how investor affinity in terms of gender and age affects the way the scheme spreads and the way investors suffer losses. We find that female or older investors are more susceptible to investor affinity. Specifically, female or older investors are more likely to be referred into the scheme by female or older investors. Female or older investors tend to occupy lower layers in the investor hierarchy of the scheme and they are more likely to occupy lower layers if they are referred into the scheme by female or older investors. Consequently, female or older investors suffer more losses if they are referred into the scheme by female or older investors. We conclude that gender and age-based investor affinities are especially pronounced among female or older investors in a Ponzi scheme.

We examine whether dividend tax induced lock-in reduces idiosyncratic volatility. The 2012 Dividend Tax Reform in China tied individual investors' dividend tax to the length of their shareholding period, with short-term individual investors entering into higher tax brackets. We find that high dividend firms experience a reduction in idiosyncratic volatility, relative to low dividend firms, after the reform. The effect is more pronounced when high dividend firms have more retail investors and exhibit greater uncertainty. High dividend firms also experience a reduction in stock price crashes. Finally, with reduced trading by individual investors who are likely less informed, earnings announcements of high dividend firms trigger less trading volume during the event window post-reform, but enable more complete price reactions. We conclude that dividend tax induced lock-in, through discouraging short-term individual investors' trading, stabilizes the market and improves share price informativeness. JEL Classifications: G12; G14; G35; F38.

U.S. multinational enterprises repatriated over $300 billion under the 2004 tax holiday. The repatriated funds can improve debt financing environment of nonrepatriating firms, especially those that are financially constrained. We document that such an externality of the tax holiday increases debt financing and consequently investments for financially constrained nonrepatriating firms relative to less constrained nonrepatriating firms. Using private loan market data, we further confirm a link from repatriated funds to increased debt financing for financially constrained nonrepatriating firms. Overall, the 2004 tax holiday appears to have benefited the U.S. economy through its positive externality on the debt market.

We examine the association between CEO severance pay (i.e., payment a CEO would receive if s/he is involuntarily terminated) and corporate tax planning activities. We find that CEO severance pay is positively associated with corporate tax planning, consistent with CEO severance pay providing contractual protection against managers' career concerns and thereby inducing otherwise risk-averse managers to engage in incremental levels of tax planning. This result holds under an instrumental variable approach and propensity score matching, and survives alternative measures of CEO severance pay and corporate tax planning. Finally, we find that severance pay provides stronger tax planning incentives in situations where managers are expected to face greater career concerns—when they are less experienced, when they face stronger shareholder monitoring, and when they manage firms with higher idiosyncratic volatility. Overall, our results suggest that CEO severance pay represents a form of efficient contracting with otherwise risk-averse managers.