The Effect of Tax Enforcement on Corporate Digital Transformation: Evidence From the Implementation of Tax Administration Information System in China

In the policy context of China's CTAIS-3 project, we study the impact of tax enforcement on corporate digital transformation (CDTM). We find that enhanced tax enforcement suppresses CDTM. This effect is mainly realized through three channels: increasing the tax burden of enterprises, reducing enterprise investment and suppressing enterprise innovation. And our heterogeneity test indicates that the negative effect of tax enforcement enhancement on CDTM is more pronounced for corporates located in provinces with lower financial accessibility, cities with lower Internet penetration and higher fiscal pressure. Distinguished at the firm level, the strengthening of tax enforcement has a more significant dampening effect on corporate digital transformation for enterprises that are located in industries with lower levels of concentration, firms that are not state-owned, and firms with lower levels of governance. Our study sheds light on the potential economic consequences at the micro-firm level of tax enforcement policy changes and informs future tax reforms in developing countries.