| It is observed that social insurance contribution has become an increasingly important topic in China's “Supply-side” reform,because it not only matters the enterprise,but also weights much in future policies,among which tax-cut possesses the priority.As for the policy design,we need to ask,what economic phenomena does social insurance contribution refer to in China,or what economic impact does China's social insurance contribution system exert.To serve the policy design,this thesis selects three major aspects: how the social insurance contribution impacts the labor demand;how the social insurance contribution influence the labor flow across regions;and how does the “Laffer Curve” problem manifest itself in China's social insurance contribution.Taking it as the starting point,the thesis is to stick to the paradigm where the correlation and causality between employment/wage and rate,in a general sense between the base and the rate.This paradigm,seems simple and classic though,possesses the potential to deal with problems on different dimensions.Under China's socio-economic circumstance,this angle embodies two specific practical significances,one is the prevalence of tax evasion and avoidance,and the other is the existence of a vast amount of informal labor,these two problems highly intertwined with each other,co-impacting enterprises' decisions,and even institutional choices.Thusly,it is not possible to provide “China explanation” without taking these two facts into consideration.Furthermore,this thesis methodologically starts with the view that real social insurance contribution rate is indeed an economic phenomenon that is simultaneously determined by the equilibrium between tax collecting and evading/avoiding and by the equilibrium between labor supply and demand,consequently,it is pivotal to stick to the above two issues.With a zooming-out perspective,this thesis will cover three sub-questions that are highly inner-and inter-related.First,the thesis asks that how social insurance contribution impact firms' wage and employment behavior? To answer the question is to examine the hypothesis that informal labor is the practical solution for tax evasion,which leads to a structural shift in labor demand.Secondly,the thesis looks to one major feature of China's social security system – inter-regional imbalance in real social insurance contribution rate,asking that would the imbalance distort the labor market?By answering the question,it is suggested that the imbalance is consolidated by a “selffulfilling” process.Finally,the thesis will try to provide evidence for the tax-cut policy,by looking into the policy concern that will the economic growth fueled by tax-cut cost social insurance contribution income? By comparisons on different levels,the thesis suggests that tax-cut brings in more benefit than cost.To find out the impact payroll that tax puts on firms' wage and employment behavior,the thesis stressed the role of informal labor in explaining firms' evasion/avoidance.On the one hand,China has a substantial quantity of informal labor all over the state,which suffer from being poorly covered by social security system.On the other hand,the micro-level data applied in previous research has unfortunately neglected the alreadytaken-in of informal labor.Consequently,it is proposed by the thesis to adjust methodological setting to allow for heterogeneity in posts.Considering the post heterogeneity,the thesis establishes a search-matching model with“formal” and “informal” posts.In the theoretical analysis,because of the presence of Nash-Bargaining process,the thesis indicates that social insurance contribution incidence is presented by the loss in labor production surplus,thus the share is determined by the firm-labor relative bargaining power.Furthermore,the theory implies that more social insurance contribution will boost the proportion of informal posts,which incurs to a reduction in firm's real social insurance contribution rate and average wage rate while an increase in its employment scale,according to the data conditions,these hypotheses are also examinable.Besides,the thesis also discusses a potential polarization tendency in labor market,where market friction rises in formal market and falls in the informal one,therefore,firm's dependence on informal labor to evade/avoid tax may result in economic inefficiency and a total welfare loss.In the empirical study,the thesis carries out OLS regression first,however,the estimation contradicts to most economic theories,which could be the result of endogeneity.Although with different estimator under the OLS framework,only the omitted unobserved variable could be handled,leaving out the simultaneity and measurement error unsolved.Consequently,the thesis turns to an IV approach to identify the “LATE(local average treatment effect)”.Taking “whether social insurance contribution is collected by local tax bureau” as the instrumental variable,the thesis discovers that social insurance contribution could indeed have a negative impact on wage(-0.96 percent point)but may result in an increase in employment(1.96 percent point).This set of result cannot be explained by classical tax-incidence theory but is not able to falsify the previous hypotheses.What is more,the thesis developed more sub-samples test to further support the theoretical hypotheses.To begin with,due to the application of search-matching framework,the thesis checks the disparities caused by ownership,in general,stateowned enterprises have stronger administrative intervene and higher cost,which is not only supported by the empirical test but also consistent to the existing official survey.Meanwhile,the thesis also looks to the market power issue and applies the ratio of firm's employment to local labor market as another measurement of monopsonistic power,which also have gained support from empirical test.Then the thesis examines the structure of employees' education,because higher educational status may grant a bigger probability to get a formal job,the thesis finds out that firms with more highly educated employees tend to hire more informal labor.Finally,the thesis considers liquidity of labor in local market,taking the proportion of self-employed as the indicator of labor liquidity,the thesis finds that regions with higher labor liquidity may have more informal labor applied and lower social insurance contribution rate level.Answering the first question may have the following policy implication,that is,expanding the coverage of China's social security should be combined with labor right protection.In fact,the existing laws and executive orders indicate that labor's right to social security is not incompatible with any categories of posts.Via better labor right protection,the coverage expansion could be protective,which creates a wider base for lower rate for future social insurance contribution policies.Under the second research question,the thesis turns to an inter-regional issue — interregional social insurance contribution rate imbalance's impact on labor market.China's current social security system lays its base on a provincial-level management mechanism,within which provincial-level government has the power to set the rate,pension level and even the collecting body.This system grants provincial government the ability to define local social insurance contribution rate in order to maintain social harmony.Through this lens,the tax rate is the “result”.However,like in international economics,people tend to believe that the uneven distribution of inter-country tax rate could incur capital's flow to lower rate places,the thesis asks that may the constant and significant social insurance contribution rate imbalance between provinces,as the cause,lead to change in labor market?To answer the question,the thesis compares different measurements of real provincial social insurance contribution rate above all and suggests using the ratio between“annual fund income” to “total wage” as the indicator.This measurement not only provides a closer result to micro-level data,but also takes informal labor's income into consideration,which implies the methodological setting that takes the local economy as whole and believes social insurance contribution impact both formal and informal labor market.Based on this measurement,figures show that the difference in tax collecting body gradually loses its influence on inter-regional tax rate difference while population flow constantly keeps its significance on determining regional real social insurance contribution rate,which implies a correlation between labor flow and real social insurance contribution rate.In theory,previous theoretical studies mostly agreed on lower social insurance contribution rate may boost labor demand and employment while disagreed on the direction of wage change.Earlier theories insisted on “supply rises and wage falls”,which is based on the assumption that labor demand has to happen via “trade-in-bulk”via the unemployed.However,recent theories criticized this assumption and pointed out that lower tax rate increase the surplus and thus the opportunistic cost for not using labor,which could in turn cause simultaneous rise in both wage and employment.With a provincial panel data,the thesis firstly examines the correlation between real social insurance contribution rate and wage/employment,via two-way fixed effect model,two-way random effect model,interacted fixed effect model.However,the research question itself embodies simultaneity which lead to the failure in ATE identification.Consequently,from a discussion of government maximization,the thesis finds that the number of the retired could be a proxy to raise-up pressure and a valid instrumental variable to real social insurance contribution rate.IV regression shows that higher province-level social insurance contribution rate leads to a-0.79-negative impact on wage and a-0.72-negative impact on employment,which implies a 1.5 percent point of base loss,this set of result is robust to small sample problem,different variable measurement and different IV-based regressors.Furthermore,with a visualized-IV-regression approach,the thesis also justifies that between-effect is significant.In subsample tests,the thesis proves that the negative influence between real social insurance contribution rate and wage/employment mainly significantly occurs in private sector.The thesis argues that this phenomenon reflects a process of “basecapture”,namely,when raise-up pressure change lead to higher social insurance contribution rate,it entails involving more labor into the system from the private sector which used not to be well engaged in China's social security system.This process not only lowers the wage/employment in private sector,but also worsens the entrepreneurship and local fiscal balance.Moreover,the linear fit is only applicable to the population-out region,which suggests that it is the collecting pressure that fuels the rise of tax rate while it is the compliance that lowers the tax rate with a higher coverage ratio in the population-in region.This sharp opposition between the two kinds of regions justifies the existence of government heterogeneity,resulting in two different institutional environments.Contextually,the thesis suggest that future policy may consider a narrow-down of regional institutional arrangements to weaken the distortive effect.Under the current policy tendency,it is possible to close the gap between the high-rate regions' nominal rate and that of lower-rate regions,which may be helpful to narrow down the difference between local real social insurance contribution rate and to maintain fairness across provinces in the future central-oriented system.Regarding the major concern in tax cut policy,it is the seeming contradiction between lower tax rate's negative influence on fund income and positive impact on economic growth.However,the thesis tends to remind the complexity in this issue,given that higher tax rate may lead to a “base loss”.The inquiry on the relationship between social insurance contribution rate and its income is indeed the "Laffer Curve" issue in this field.With an IV approach,this thesis studies China's Laffer Curve of its social insurance on the provincial-level sample between 2008 and 2016,the empirical findings imply a negative relation between the rate and the revenue,which suggests that China's current social insurance rate might be too “high”.Moreover,this negativity overshadows the motivation of rate-cut policy,since the drop in social insurance fund revenue may increase the tension in its societal raise-up capacity.Under this circumstance,a natural question is that is the rate-cut policy worth of implementing?To answer this,the thesis further examines how much economic growth the social insurance rate cut could bring in.The IV regression analysis shows that compared to the induced loss in social insurance revenue,cutting down rate could actually generate more economic output,which indicates a net-positive policy outcome.By looking into the different regions,the thesis also finds out that this “net-positive”effect is stronger in the population-flow-out provinces.This situation may further strengthen the policy implication that it is proper to lower down the rate in this population-flow-out and less-developed provinces first.This move may not only push forward investment and output in these provinces but also to make even the rate between these population-out and those population-in,reducing the inter-regional distortive effect.Throughout analyses on three sub-questions,the thesis has proved that higher social insurance contribution rate may suppress the tax base.This suppressing effect could deepen the informality of labor market,thus lower the income of social security fund,and even dampen the total economic production.To alleviate such effect,future policies and reforms should emphasize the distortive impact that institutional cost and interregional institutional difference put on the market.On the one hand,in the short run,policy could try to narrow down the institutional differences between provinces,on the other hand,in the long run,policies should aim to strengthen the equity across the market,turning social security system development into a protective expansion,which would not only lower tax burden but widen the base.Moreover,the squeeze on firm's evasive potential may also boost productivity,pushing firms to get rid of dependence on tax evasion and to strive for development with better productivity and more innovation,which would finally benefit the total economic growth. |
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