Abstract: For a long time, issues such as an obstructed value-added tax (VAT) deduction chain and unbalanced tax system development have existed between small-scale VAT-payers and general taxpayers. Market activities between these two types of business entities have been affected, leading to a certain degree of market segmentation, which is not conducive to stimulating market vitality. Therefore, there is an urgent need to promote the optimization of taxpayer identity management. Based on the National Tax Survey and the National Business Registration Information datasets, this paper utilizes the policy pilot allowing small-scale taxpayers to self-issue VAT special invoices to establish a quasi-natural experiment. It investigates the impact of optimizing VAT-payer identity management on the entry of small-scale taxpayers, finding that this optimization significantly increases the probability of small-scale taxpayer entry, effectively stimulating market vitality. Further research reveals that this effect is realized through the following three mechanisms: the optimization creates a fair market environment for business entities, reducing obstacles to business expansion; it lowers institutional transaction costs, thereby alleviating financing constraints for business entities; and it sends a positive signal for development, strengthening the positive expectations of small-scale taxpayers. Furthermore, heterogeneous effects are found across different groups based on property rights, industry type, and regional digital tax collection and administration levels. This paper provides empirical evidence for deepening tax collection and administration reform, offering policy insights on how to effectively stimulate market vitality in the process of Chinese modernization.

Key words: small and micro businesses, small-scale taxpayers, business entry, taxpayer identity management, market vitality