Research On The Influence Of Corporate Income Tax Preference On Labor Income Share

Adjusting the factor income share is the inherent requirement for our country to deepen the reform of the income distribution system and achieve prosperity for all.Since the middle and late 1990 s,the labor income share in China had been downward,gradually going down from 0.534 in 1996 to 0.397 in 2007.Though there was a slight increase after 2008,it was still hovering at the low level of the average of 0.464.The continuous decrease of the labor income share means a ceaseless fall in the proportion of workers’ remuneration in the distribution of national income.In an economy,there would be a larger gap in the composition of income sources of different groups.The people with middle and low income would mainly gain remuneration through labor while the people with high income would mainly acquire it through capital compensation,which means that the deteriorating status of labor factors in the process of national income distribution is harmful to the personal income distribution.Therefore,the decreasing labor income share is bad for achieving that development achievements are shared by the people and is obstructive to the realization of the vision of prosperity for all.Taxation is an important method for the government to adjust income distribution,and its adjustment on the factor income distribution should not be ignored.The proportion of Chinese corporate income tax in tax revenue has steadily increased from 17.2% in 2001 to 23.6% in 2020,which is the direct tax with the highest proportion in our country,hence,its change would inevitably affect the distribution process of production factors.In view of these,this paper would describe the changing trend of Chinese labor income share in the past few years and sort out the practice of the Chinese policies on the preferential corporate income tax.From the perspective of the corporate factor income distribution,the paper begins with the three specific policies on the preferential corporate income tax and has a systemic observation of the influence of the policies on the preferential corporate income tax on the labor income share;and there would be profound analysis on its conduction mechanism,so as to provide experience evidence and decision-making reference to make afurther deepening of the fiscal and tax system reform to urge the equal factor income distribution and steadily proceed the prosperity for all.This paper is composed of seven chapters.Chapter one is an introduction to present the study background of the paper and the significance of the topic selection,describe relevant literatures,talk about the main content and technical route of the paper and illustrate the main innovation points of the paper.Chapter two is to define the core explanatory variable and sorts out the relevant theories of policies on the preferential corporate income tax affecting labor income share.Chapter three predicts and measures the stylized fact for the change of labor income share in China in the past few years,and there is sorting on the policies on the preferential corporate income tax.Firstly,this chapter introduces the calculation method of the labor income share;and then there is a measurement for the changing trend of the Chinese labor income share before and after adjustment.In addition,the labor income share after the adjustment is divided into self-employee and employee these two parts.At the same time,the changing trend of the two parts with the macro and microenterprise data.Finally,there is a sorting of the practice of policies on the preferential corporate income tax to choose three representative policies for further study.Chapters four,five and six are the core parts of the paper.Among them,chapter four studies the influence of the tax-rate preferential corporate income tax on the labor income share.The preferential corporate income tax could be divided into direct preference and indirect one.The tax-rate preference is an important form of direct preference.Based on the theory of income effect and substitution effect of tax policy,this chapter makes the reduction and exemption of corporate income tax rate during the period of the large-scale development in the western region in 2001 as a “quasi-natural experiment” with the use of the data of industrial enterprises in China from 1998 to 2007,so as to build up a difference-in-differences model.The model analyzes how the tax-rate preference can affect the labor income share from the two channels,mitigation of corporate financing constraints and complementarity of capital and labor.Different from the working mechanism of the direct preference,the indirect preference of corporate income tax would trigger a change of labor income share by affecting certain specific actions of the enterprise.Chapters five and six in this paper study the influence of the two specific indirect preference policies on the labor income share.Chapter five observes the influence of accelerated depreciation of fixed assets on the labor income share.This chapter would make the policy on the accelerated depreciation of fixed assets in 2014 a “quasi-natural experiment” to build a quasi-natural experiment with the data of Ashare listed companies from 2009 to 2018,so as to study the influence and working mechanism of the policy on the labor income share from the perspective of human capital.Chapter six analyzes the influence of the additional tax deduction for R&D expenses on the labor income share.This chapter makes the additional tax deduction for R&D expenses in 2016 a “quasi-natural experiment” with the data of A-share listed companies from 2013 to 2018.The experiment is used with the PSM-DID method to have an empirical analysis of how the additional tax deduction for R&D expenses affects the labor income share from the R&D input and R&D output from these two perspectives.Chapter seven draws a conclusion for the whole paper and proposes suggestions for policies,and it also demonstrates the weakness of the paper and the prospect of the study.Through the theoretical analysis and empirical tests mentioned above,the paper finds that the preferential corporate income tax is an important influencing factor of the labor income share,but there is a distinct gap in the influence of various forms of preferential policies:(1)tax-rate preferential corporate income tax could obviously increase the labor income share,and there would be more significant effect on the non-state enterprises,enterprises in areas with high tax intensity,laborintensive enterprises and enterprises with low market concentration.The mechanism analysis result shows that the tax-rate preference would reduce the effective tax rate of corporate income tax,reduce the corporate tax rebates and add the after-tax profits so as to impose a positive influence on the labor income share through mitigation of corporate financing constraints and complementarity of capital and labor these two channels.(2)The accelerated depreciation of fixed assets imposes a significant positive effect on the labor income share,and there would be a heterogeneous impact on enterprises with different ownership,region,factor intensity,enterprise scale and financing constraints.The mechanism analysis result shows that the accelerated depreciation of fixed assets significantly pushes the enthusiasm of enterprises to invest in fixed assets of machinery and equipment.Such fixed assets have more advanced scientific technology,so it would add the demand of enterprises for highly skilled labor and increase the wage payment level and the number of employees,so as to drive a surge of overall labor income share.(3)Different from the effect of the previous two policies,the additional tax deduction for R&D expenses imposes a significant negative impact on the labor income share.As for the reason,the paper finds that the additional tax deduction for R&D expenses significantly pushes the corporate R&D behavior so as to affect the labor income share through the R&D input effect and R&D output effect.In view of input effect,the increase in enterprise R&D expenditure boosts the demand of enterprise on R&D employees so as to impose a positive impact on the labor income share through the increase in wages and employment of these employees.As for the output effect,the policy stimulates the enterprises to add the R&D expense to increase the substantive innovation output and the total factor productivity of the enterprises,which would lead to a deepening process of capital to impose a negative impact on the labor income share.In the end,the negative effect generated by the R&D output exceeds the positive effect of the R&D input,resulting in a decrease in the labor income share.The marginal contributions of the paper are the mainly following three points.Firstly,different from the vast previous literatures,the paper jumps out of the traditional discussions on the economic efficiency of the policies on the preferential corporate income tax to initially observe the effect of various policies on the preferential corporate income tax from the perspective of the factor income distribution,and the paper also conducts a detailed heterogeneity analysis and mechanism discussion to extremely widen the existing study field on the effect of policies on the preferential corporate income tax.Secondly,the study in the paper enriches the current literatures on the influencing factors for the change of labor income share.The current literature on the influencing factors for the change of labor income share mainly focuses on the macro factors such as economic development level and globalization and micro factors such as labor negotiation and financing constraints,but they ignore the importance of the preferential corporate income tax.Thus,the paper is a critical supplement and extension of the field.Thirdly,the study methods,precisely evaluate the impact of the preferential corporate income tax on the labor income share.The paper builds up difference-indifferences models with three policies on the preferential corporate income tax as “quasi-natural experiments” and conducts vast robustness tests to better relieve the endogenous problems.