The Influence of Replacing Business Tax with Value-added Tax on Corporate Labor Demand

Abstract

Abstract: Based on the data of Shanghai-Shenzhen A-share listed companies from 2010 to 2014, this paper applies PSM and DID to examines the impact of replacing business tax with value-added tax (RBTVAT) in Shanghai, eight cities and provinces as well as the whole nation on corporate labor demand and its channel mechanism. The results show that compared with non-pilot firms, RBTVAT has significantly increased the labor demand of pilot firms, indicating the capital-labor income effect is greater than the substitution effect. Our further study on the property characteristics and financial development show that the positive relationship between RBTVAT and corporate labor demand is more significant in private firms and firms in less financially developed regions. The results of this extended analysis show that mitigating internal financing constraints is an important channel mechanism for RBTVAT to increase corporate labor demand. This paper, as an important supplement to the existing tax reform researches, provides an alternative insight into influencing factors of corporate labor demand.

Key words: RBTVAT, property characteristics, labor demand, income effect

Cao Yue, Peng Keren, Guo Tianxiao. The Influence of Replacing Business Tax with Value-added Tax on Corporate Labor Demand[J]. Management Review, 2022, 34(11): 3-15.

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