Tax Administrative Penalties and Corporate Tax Compliance: Evidence From China

This study investigates the impact of tax administrative penalties on corporate tax compliance using data from the National Enterprise Credit Information Publicity System of China. The findings show that tax administrative penalties significantly deter corporate tax evasion. Specifically, penalties help regulate corporate behaviour by reducing agency costs, limiting collusion between taxpayers and tax officials, and increasing the costs of capital thinning and accrual‐based earnings management. The deterrent effect is stronger in regions with higher local fiscal pressure, greater enforcement attention, and more advanced information technologies. Moreover, tax administrative penalties produce spillover effects, improving tax compliance among firms in the same industry or region as penalised companies. These results highlight the critical role of tax enforcement in managing tax risks and strengthening compliance. This study recommends improving the uniformity of tax discretion benchmarks across regions to optimise the penalty system and provide institutional support for building a unified national market.