How does the Reform of Social Insurance System Affect Corporate Tax Avoidance? Evidence from a Quasi-natural Experiment of the Transfer of Department in Social Insurance Contributions

As an important reform of social insurance system, the transfer of department in social insurance contributions has a wide and far-reaching impact on both the protection of workers’ rights and enterprises. In 2018, Plan for Deepening the Reform of Party and State Institutions, which was deliberated and adopted at the Third Plenary Session of the 19th CPC Central Committee, pointed out that in order to improve the collection and management efficiency of social insurance funds, the basic endowment insurance, basic medical insurance, unemployment insurance and other social insurance will be uniformly and fully collected by the tax department （the transfer of department in social insurance contributions）. It is proposed to plug the loopholes of social security payment through reform in accordance with the law, so as to make the social security fund grow sustainably, and regulate the social security payment behavior and related financial behavior of enterprises. However, the existing research on the micro enterprise economic consequences of the transfer of department in social insurance contributions is extremely scarce, which only involves the enterprise value and cost markup ratio of enterprises. This paper attempts to analyze the governance effect of the transfer of department in social insurance contributions from the perspective of tax avoidance and take the listed companies of China’s A-share from 2008 to 2018 as the initial sample for empirical test. The research finds that: The degree of tax avoidance is reduced after social insurance contributions are uniformly and fully collected by the tax department. The specific examination of the impact mechanism shows that, after the transfer of department in social insurance contributions, the tax department can master more financial information of enterprises and check their financial accounts through tax collection and audit, which improves the transparency of accounting information, and then restrains enterprise tax avoidance. Further study finds that the governance effect of the transfer of department in social insurance contributions on corporate tax avoidance is only reflected in the enterprises with weak tax collection and management, low audit quality and low analyst attention. From the new perspective of enterprise tax avoidance, this paper understands the governance effect of the transfer of department in social insurance contributions on enterprise financial behavior, enriches the literature on the impact of the transfer of department in social insurance contributions on micro enterprise behavior. The findings are helpful for policymakers to clarify the potential impact of the reform of the transfer of department in social insurance contributions on enterprises, and have policy implications for the government to further optimize social security system.