Do firms benefit from public information services: Evidence from a tax hotline program in China

Abstract

We investigate the effect of a public information service program in taxation on firms' effective corporate income tax rate (ECITR), taking advantage of a tax hotline program that lowers the cost of access to tax information. Using Chinese firm-level administrative data and exploiting a stacked difference-indifferences model, we find that firms experienced decreases in ECITR after the hotline adoption, and this effect is more pronounced for smaller firms and younger firms. This effect is driven by the hotline helping existing policies transmit more efficiently, and firms claim more tax credits. Furthermore, the tax windfall brought by the hotline has real impacts on firms by increasing their cash flow, investment, and returns on assets.