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| The Impact of Talents in the Tax Auditing Department on Tax Governance |
| ZHANG Ying, SUN Kunpeng, HOU Weiyi, BAI Yanfeng
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| School of Emergency Management and Safety, Wuhan University of Technology; School of Public Finance and Taxation, Central University of Finance and Economics; Chinese Academy of Fiscal Sciences |
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Abstract In the context of national efforts to promote talent development and modernize tax governance, tax authorities, highly specialized public sector agencies with broad service coverage, have long prioritized the development of strong tax audit teams. Through initiatives such as talent pool development, professional competitions, and certification programs, these authorities have sought to enhance team competence, particularly by recruiting certified tax agents and accountants to bolster audit capacity. However, the impact of such talent investments on tax governance outcomes and their underlying mechanisms remains insufficiently explored. Existing literature identifies gaps in the analysis of the economic value of human capital in the public sector. Using national tax survey data from 2009 to 2016, this paper systematically investigates the impact of personnel investment in tax audit departments on the tax decision-making behavior of micro-enterprises, with the goal of addressing gaps in research regarding the economic effects of public sector human capital and the factors influencing corporate tax avoidance. The findings contribute significant theoretical insights and practical recommendations for advancing the modernization of tax governance.
The study demonstrates that investment in specialized tax audit personnel significantly enhances corporate tax compliance. This effect results from enhancing the effectiveness of tax audits, particularly by increasing audit volume, improving case selection accuracy, and raising case resolution rates. These improvements in audit processes strengthen deterrence and enhance both efficiency and precision, thereby raising the cost of tax avoidance for enterprises. As a result, companies are more likely to comply with tax regulations, weighing the marginal benefits of tax avoidance against penalty costs, which ultimately leads to greater tax compliance. This baseline result holds even after a series of robustness tests, ensuring the reliability of the results. Additionally, by addressing endogeneity, the study mitigates potential issues with causal identification, further strengthening the validity of the results.
Heterogeneity analysis uncovers significant variations in the effectiveness of this governance strategy across different regions and firm types. At the regional level, the positive effects of talent investment are more pronounced in areas with greater public awareness of tax auditors and higher levels of digitalization in tax governance. The former amplifies deterrence signals by enhancing firms' perceptions of audit capacity, while the latter generates a multiplier effect through the integration of “talent and technology”. At the enterprise level, the impact is more significant for larger firms or those with a more diverse range of tax obligations. These companies, due to their higher tax complexity and more concealed tax avoidance behaviors, are more likely to benefit from the constraints and guidance provided by specialized audits.
Further analysis demonstrates that investment in tax audit professionals provides additional governance benefits. On the one hand, it promotes the effective utilization of available tax incentives by firms, ensuring proper policy implementation and preventing firms from missing benefits due to misunderstandings or insufficient reporting. On the other hand, it enhances tax burden fairness among firms, fostering a more equitable tax environment and mitigating market imbalances caused by unequal tax burdens, thereby maintaining market stability. Notably, empirical results show no significant long-term negative impact on corporate performance following a reduction in tax avoidance due to specialized audits. In contrast, these audits incentivize firms to increase innovation investment and enhance internal control, thereby indirectly boosting their performance. This suggests that talent investment primarily results in efficiency gains rather than merely increasing the tax burden on businesses.
The academic contributions of this paper are threefold. First, it broadens the traditional framework for analyzing corporate human capital by focusing on public sector human capital, emphasizing its roles in public goods provision, externalities, and institutional execution. Second, it fills a gap in the existing literature concerning the impact of the qualifications of tax policy implementers (i.e., tax auditors) on corporate tax compliance, expanding the study of factors influencing corporate tax avoidance and clarifying the core role of human capital in tax administration. Third, it clearly elucidates the mechanisms and boundary conditions of tax audit talent investment, and provides practical insights.
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Received: 08 October 2025
Published: 27 February 2026
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