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Does government reduction of the corporate income tax rate increase employment? Evidence from China

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  • Zuo, Shengqiang
  • Wu, Bangzheng
  • Feng, Jun

Abstract

Using 2.21 million pieces of data from the National Bureau of Statistics of China's Industrial Enterprises Database, compiled during 1998–2013, we apply a static panel model and a dynamic panel model to build upon previous research by more accurately examining the impact of changes in corporate income tax rate on employment. The endogeneity problem is solved by using a variable set. The empirical results show that reducing the corporate income tax rate can increase the overall employment by affecting employee wages, enterprise debt-to-asset ratio, and enterprise return on assets. Moreover, tax reduction can increase the employment of private and collective enterprises, but it has no significant impact on the employment of state-owned enterprises. Conversely, it can inhibit the employment of foreign, Hong Kong, Macau, and Taiwan enterprises.

Suggested Citation

  • Zuo, Shengqiang & Wu, Bangzheng & Feng, Jun, 2023. "Does government reduction of the corporate income tax rate increase employment? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 365-372.
    • Handle: RePEc:eee:reveco:v:83:y:2023:i:c:p:365-372
    DOI: 10.1016/j.iref.2022.09.002
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    3. Zhang, Xiekui & Huang, Yihan & Fenglan Wei,, 2024. "The incentive effects of the macro tax burden on economic growth: A negative or positive incentive effect? Analysis based on panel data," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 128-147.

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