Li Liu is a Senior Research Fellow at the Oxford University Centre for Business Taxation. Her primary areas of research are in the fields of public economics, development economics and applied microeconomics, with particular emphasis on business taxation. Most of her papers are part of a long-term research agenda that aims to understand the effects of business taxation and its broad impact on economic welfare and growth, and to contribute to the design of effective and efficient tax systems in both developed and developing countries.
Li joined the Centre for Business Taxation as a Research Fellow in October 2010 before completing her PhD in Economics from Rutgers University in January 2011. She received her BS in Economics from the College of New Jersey (summa cum laude) and her MA from Rutgers University.
In 2015 Li won the IIPF Young Economists Award from the International Institute of Public Finance, for her paper Effectiveness of fiscal incentives for R&D: a quasi-experiment (joint with Irem Guceri). Prior to this award, Li received the John Fell Fund Research Grant in 2013 and as a result is the Principle Investigator for Corporate Taxation and Firm Behaviour: Empirical Evidence from China.
Li’s research has been published in leading academic journals including the American Economic Journal: Economic Policy, the British Tax Review, and National Tax Journal and cited in influential publications such as The Economist, The New York Times, The Independent, Forbes and CBS. Her expertise is also widely recognised within business and government with one of her latest policy papers Choice of Business Entities in the UK (with Judith Freedman) being written in response to a request from the Joint Committee on Taxation in the United States.
Li Liu is fluent in English and Chinese.
Areas of Expertise:
• Public Economics• Corporate Investment and Finance• Taxation in Developing Countries• Applied Microeconometrics
Most of Li's papers are part of a long term research agenda that aims to understand the effects of business taxation and its broad impact on economic wealth and growth, and to contribute to the design of effective and efficient tax systems in both developed and developing countries. Some of her current research includes:
1. International Tax Policy and Multinational Activity
Home Country Taxation and Multinational Investment: Evidence from the UK (under review)
In this paper, Li provides the first micro-level evidence on the causal effect of home country taxation on real outbound investment by multinationals, by exploiting a 2009 territorial tax reform in the United Kingdom that exempted foreign profits from taxation at home. Using data on multinational affiliates in 27 European countries and employing a difference-in-differences approach, she finds that the tax reform has increased outbound investment (relative to the level of existing fixed assets) of UK multinationals by around 15.7 percentage points in countries with a lower corporate tax rate than the UK. This translates to a strong bang for the buck effect of the tax reform, as it increases the outbound investment by UK multinationals by nine pound for each pound of domestic revenue loss. The results shed light on the current policy debate on whether the United States should implement a territorial tax system, by showing that the investment increase abroad does not result in any significant investment distortion or loss at home. The findings also have important implications for domestic tax policy, by showing that changing to territorial taxation in major capital-exporting countries could exert downward pressure on the level of corporation tax in small developing countries, which tend to compete for inward foreign direct investment.
2. Small Business Incorporation and Investment
Incorporation for Investment, with Michael Devereux (under review)
This paper provides the first evidence on the link between small business incorporation and investment by exploring cross-sectional variation in the impact of a 2006/07 tax reform in a difference-in-differences design. Analyzing the population of UK corporation tax records from 2002 to 2008, we present three findings. First, a one percentage point increase in the tax gains to incorporation increases the number of newly incorporated companies by around 2 to 4.5%. Second, there is a strong cash flow effect of taxes on corporate investment. On average, a ten pound increase in the tax bill reduces firm investment by about 6.5 pound. Third, the cash flow effect of corporation taxes on investment is most pronounced for newly incorporated firms, and diminishes over time. For newly incorporated firms, a ten pound increase in their tax bill decreases investment by around 9 pound. This evidence is consistent with the hypothesis that incorporation lowers the cost of external finance for small businesses, and that the cost is further reduced the longer a business has been incorporated.
3. The Economic Impact of the Value-Aded Tax (VAT) System
VAT Notches, with Ben Lockwood (under review)
Press coverage: World Economic Forum, Vox
This paper develops a conceptual framework for studying two key aspects of behavioural response to VAT including voluntary registration and bunching. By capturing the effect of the VAT on profitin two effective taxes on registration and non-registration, we develop (i) predictions of the determinants of voluntary registration and bunching at the registration threshold; and (ii) a formula for estimating the elasticity of value-added with respect to the statutory VAT rate.
The authors bring the theory to the data, using linked administrative VAT and corporation tax records in the UK from 2004-2009. They show that consistent with the theory, voluntary registration is positively related to the intensity of input use and negatively related to the share of business-to-consumer (B2C) transactions. There is bunching at the VAT threshold, and the amount of bunching is negatively related to the intensity of input use and positively related to the share of B2C transactions. They estimate that the elasticity of the VAT tax base is between 0.09 and 0.18.
4. Innovation and R&D: the Role of Fiscal Incentives
Effectiveness of Fiscal Incentives for R&D, with Irem Guceri (under review)
We estimate the causal effect of R&D tax incentives in stimulating private R&D, by exploiting two 2008 policy reforms in the UK to address the simultaneous determination of R&D spending and its tax price. The first reform expanded the definition of Small and Medium Sized companies (SMEs), and brought differential changes in the user cost of R&D faced by newly-classified SMEs compared to companies that remained as large, whose user cost of R&D remained roughly stable. The second reform increased the rate of enhanced deduction for SMEs but not large companies, lowering the user cost of R&D for companies that were always SMEs relative to that for companies that were always large. We find a strong impact of R&D tax incentives on firm-level R&D spending from both reforms and estimate a user cost elasticity of around -2.3. This translates to around 1.5 pound in additional private R&D for each pound foregone in corporation tax revenue.
5. Interaction between Tax Incentives and Non-tax Institutional Features
Does Owndership Affect the Impact of Taxes on Form Behaviour? with Clemens Fuest (under review)
We exploit key features of recent corporate tax reforms in China to shed light on the differential impact of taxation on firms under different ownership regimes including private, collectively owned (COEs) and state owned companies (SOEs). We develop a simple theoretical model to show that the effectiveness of the tax incentives on real economic activities depends on the extent to which taxes are real costs in firms of different ownership. Employing a difference-in-difference approach, we find that the increase in the deductibility of wage costs in 2006 has led to a sizable increase of wages per worker in private firms and an even larger increase in COEs. In contrast, there is no significant wage response in SOEs. The decrease in the statutory tax rate since 2008 has lowered leverage in COEs and private firms while there is no significant change on leverage in SOEs. Our results also suggest that the 2008 reform has reduced tax-motivated investment round tripping through Hong Kong, Macao and Taiwan.
Work in Progress
International Transfer Pricing and Tax Avoidance: Evidence from the linked Tax-trade Statistics, with Tim Schmidt-Eisenlohr
This on-going work analyzes the scale of tax-motivated mispricing by UK multinationals engaging in international trade and the resulting distortion in aggregate bilateral trade flows. In particular, we plan to examine whether the scale of tax-motivated mispricing is systematically different between developed and developing countries. A central question in this regard is whether limited capacity in tax administration would allow multinationals to exploit the tax difference to a larger extent in developing countries. Findings from this research should lead to a better understanding of the importance of tax administration and the implications of tax avoidance for the effects of taxes on real economic activity, particularly in developing countries.
Do R&D Tax Incentives Work in Developing Countries? Firm-level Evidence from China, with junxue Jia and Guangrong Ma
Tax Simplification, Informality and Compliance: Evidence from South Africa, with Michael Devereux
VAT Notches and Firm Growth, with Ben Lockwood
"Income Taxes and Business Incorporation: Evidence from the Early Twentieth Century", National Tax Journal, June 2014, 67(2), 387-418.
"The Elasticity of Corporate Taxable Income: New Evidence from the UK Tax Records" (with Michael Devereux and Simon Loretz), American Economic Journal: Economic Policy, May 2014, 6(2), 19-53.
"Temporary Increase in Annual Investment Allowance" (with Andrew Harper), British Tax Review, October 2013, Issue 4, 385-394.
"Measuring the Incidence of Corporate Taxes under Imperfect Competition" (with Rosanne Altshuler), National Tax Journal, March 2013, 66(1), 215-238.
For a full list of Li's research, see her personal website.
Li’s research has been referenced in influential publications such as The Economist, The New York Times, The Independent, Forbes and CBS. Her expertise is also widely recognised within business and government with one of her latest research papers: Choice of Business Entities in the UK (with Judith Freedman) being written in response to a request from the Joint Committee on Taxation.
Li has been extensively involved in organising and presenting research at various conferences for business and government. She organised the second joint HMRC and Centre for Business and Taxation workshop; organised and chaired a special session on Research Exploiting UK Administrative Data at the 2013 Royal Economic Society annual conference and has been responsible for organising the annual Doctoral Meeting in Public Economics at the Oxford University Centre for Business Taxation.
Li regularly presents at the American Economic Association Annual Meeting and the National Tax Association Annual Conference in the United States, the Royal Economics Society conference in the UK, and at international academic conferences including the Max Plank Institute for Tax Law and Public Economics and the International Institute of Public Economics and Finance.
For a full list of where Li has presented her research visit the Economic and Social Research Council.
Li currently teaches MFE corporate finance support class at the University of Oxford and public economics at Renmin University of China.
Li began teaching at a very early stage of her academic career after recognising its importance in developing new researchers and the next generation of economists. Teaching was an important component of Li’s doctoral studies at Rutgers University. In her first year of graduate school she taught Principle of Microeconomics and served as a teaching assistant for numerous PhD classes.
Since then Li has taught undergraduate level Introduction to Microeconomics and Econometrics. She has also been a teaching assistant for graduate level studies, holding weekly recitation sessions and grading weekly assignments for Microeconomics II, Econometrics I, and Seminar in Econometrics (Semiparametric Econometrics).
Li’s teaching style is very hands-on and rests on three general objectives: to develop students' economic literacy; to develop students' economic competence; and most importantly, to help students develop knowledge of the workings of economic systems and a sense of the economic dimensions of social and political issues. Li believes that putting course material into a real life context and providing a high level of support is the key to stimulating students’ interest in economics.
Centre for Business Taxation
Saïd Business School
Park End Street