VAT Sharing, Fiscal Incentives, and Corporate Financialization

Under fiscal decentralization, local government interventions driven by tax-sharing incentives are key to understanding corporate financialization. By taking China’s 2016 VAT revenue-sharing reform as a quasi-natural experiment and utilizing panel data of A-share manufacturing firms covering the 2012–2021 period, we employ an intensity DID design to examine its effect. The empirical results demonstrate that a higher local VAT share significantly inhibits corporate financialization, and this core conclusion remains stable across robustness checks. Mechanism tests reveal that strengthened fiscal incentives lead local governments to increase credit support and relax environmental enforcement, thereby mitigating financialization. This effect is more prominent for enterprises with high external financing demands, high-pollution industries, and fiscally stressed regions. The study provides insights into mitigating financialization and enhancing VAT sharing design.