Digital Auditing and Tax Compliance: Evidence from China’s Golden Audit Project III

Abstract This paper examines whether government digital auditing improves corporate tax compliance in state-owned enterprises (SOEs). Using the staggered provincial rollout of China’s Golden Audit Project III (GAP III), we construct a firm-level panel of Chinese listed SOEs from 2013 to 2022 and estimate a difference-in-differences (DID) model. We find that digital auditing significantly reduces a tax avoidance proxy, consistent with higher tax compliance. The effect is robust to event-study tests, Cohort-Specific DID (CSDID) estimators, Propensity Score Matching DID (PSM-DID), alternative compliance measures, controls for concurrent reforms, lagged treatment definitions, sample restrictions, and placebo tests. Mechanism tests suggest that digital auditing improves compliance by enhancing accounting information quality and complementing regional tax enforcement. GAP III also reduces tax risk among initially low-compliance SOEs with greater initial reporting discretion, indicating that digital auditing curbs tax avoidance and stabilizes corporate tax reporting.