Abstract: As the highlight of the combined tax and fee support policies, the VAT retention and refund is a key measure to help enterprises alleviate difficulties, which has an important impact on the cross regional flow of capital. To this end, based on a quasi natural experiment of the 2018 value-added tax retention and refund policy, this paper makes use of the manually collected data of the registered locations of the subsidiaries of listed companies in China from 2014 to 2019 to empirically analyze how the value-added tax retention and refund policy affects the cross regional capital flows. The findings show that the VAT retention and refund policy has promoted the investment of listed companies in other places and effectively promoted the cross regional flow of capital. This effect is more obvious in non-state-owned enterprises and enterprises in highly competitive industries, and it has a positive impact on enterprises with different levels of VAT retention and refund. This effect is stronger in enterprises with no tax retention and refund or lower scale of tax retention and refund. The mechanism analysis reveals that VAT retention and refund policy can impact across regional capital flows mainly by alleviating financing constraints and reducing the perception of uncertainty. Therefore, it is recommended to continuously optimize the VAT retention and refund policy to create a better business environment for enterprises to invest in other regions, precisely implement the tax support policies to improve the targeting of policy support, strengthen the synergy between fiscal and financial policies to stabilize the expectations of market development.

Key words: tax policy, VAT retention and refund, cross regional capital flows, enterprise remote investment, financing constraints