Fiscal Pressure,tax Enforcement And Enterprise Labor Income Share

The share of labor income is related to the sustainable and healthy development of the whole national economy.It is an important factor that can reflect a country’s income distribution system.However,the reality is that over the past 30 years,China’s labor income share has seen a substantial and continuous decline,and the income distribution pattern is also deteriorating.At the same time,China has also implemented a series of fiscal and tax system reforms.The reform trend of "shifting financial power upward and delegating administrative power" has led to the substantial weakening of the original financial power of local governments.The mismatch of local governments’ financial revenue and expenditure has formed a huge financial gap,causing financial pressure on local governments.In order to relieve the huge financial pressure,local governments will try to adjust the intensity of tax collection and management,and transfer the financial pressure to enterprises.By extending a "grab hand" to enterprises within their jurisdiction,absorb more tax resources and strive to increase the tax burden of local enterprises.What impact will this have on the share of labor income of enterprises within their jurisdiction?This paper uses the implementation of the income tax sharing reform policy in2002 to obtain the change of financial pressure at the prefecture-level level,selects the data of industrial enterprises and prefecture-level data from 1998 to 2007,and adopts the method of difference-in-difference(DID).Construct instrumental variables to empirically analyze the influence and mechanism of strengthening tax collection and management on enterprise labor income share caused by changes in local financial pressure.The empirical research results show that under the effect of fiscal pressure,local governments will transfer fiscal pressure to enterprises in order to obtain resources to make up for the gap between local governments’ income and expenditure.In other words,they will increase the tax collection and management of enterprises,thus increasing the tax burden of enterprises and ultimately leading to the decline of the labor income share of enterprises.Heterogeneity analysis shows that the effect of the increase of the actual tax burden on enterprises and the reduction of the labor income share does exist in all kinds of enterprises after the strict tax collection and management,especially for state-owned enterprises,larger scale enterprises,enterprises in western China and non-export enterprises.The paper further verifies the transmission mechanism and the results show that the severe tax burden of enterprises reduces the added value of enterprises and eventually causes the decline of the labor income share of enterprises.In view of the above research conclusions,this paper draws the following enlightenment: first,to improve the local tax system,appropriately increase the proportion of local governments in sharing tax,so that local governments have stable tax sources;Second,improve and perfect the provisions of the tax law,strengthen the supervision and inspection of local tax collection and administration,and standardize the tax collection and administration behavior of local governments;Third,we should refine and implement the financial and administrative powers among governments at all levels,further improve the central transfer payment system,and reduce the interference of fiscal system reform on local government revenue and expenditure behavior.Fourth,we will continue to implement the structural tax reduction policy to create a more favorable tax environment for the development of enterprises by reducing the tax burden on enterprises and individuals,achieve relatively fair income distribution,and effectively increase the share of income distributed to enterprise workers.