IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v45y2024i1p414-427.html
   My bibliography  Save this article

Tax incentive and corporate hiring decisions: Evidence from China's VAT credit refund policy

Author

Listed:
  • Jiaxuan Li
  • Liming Ge
  • Lin Zeng

Abstract

Human capital acts as an increasingly crucial factor for firms to sustain stable performance and maintain competitiveness. However, we know little about how tax incentive affects corporate hiring decision concerning highly skilled employees. Using the policy of value‐added tax (VAT) credit refund in China as a quasi‐natural experiment, we explore whether and how VAT credit refund affects firms' hiring decisions on highly skilled employees. The Difference‐in‐Differences (DiD) estimate reveals that the VAT credit refund policy significantly increases the proportion of highly skilled employees. Further, the policy effect becomes more prominent in firms with heavier tax burdens, lower capital intensity, and higher financial constraints. Our mechanism tests reveal that credit refund alleviates liquidity constraints and improves capital‐skill complementarity, thus exerting a positive effect on corporate human capital upgrading. In addition, we find that the VAT credit refund policy improves earnings‐per‐worker and labor productivity but plays an insignificant role in labor income share. Our findings support the proposition that VAT credit refund leads to a positive effect on corporate human capital upgrading, offering new insights for policymakers to improve corporate employment skill structure and support the implementation of tax incentives to upgrade the labor force.

Suggested Citation

  • Jiaxuan Li & Liming Ge & Lin Zeng, 2024. "Tax incentive and corporate hiring decisions: Evidence from China's VAT credit refund policy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(1), pages 414-427, January.
  • Handle: RePEc:wly:mgtdec:v:45:y:2024:i:1:p:414-427
    DOI: 10.1002/mde.4010
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.4010
    Download Restriction: no

    File URL: https://libkey.io/10.1002/mde.4010?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Freedman, Matthew & Khanna, Shantanu & Neumark, David, 2023. "Combining rules and discretion in economic development policy: Evidence on the impacts of the California Competes Tax Credit," Journal of Public Economics, Elsevier, vol. 217(C).
    2. Jacobson, Louis S & LaLonde, Robert J & Sullivan, Daniel G, 1993. "Earnings Losses of Displaced Workers," American Economic Review, American Economic Association, vol. 83(4), pages 685-709, September.
    3. Daniel G. Garrett & Eric Ohrn & Juan Carlos Suárez Serrato, 2020. "Tax Policy and Local Labor Market Behavior," American Economic Review: Insights, American Economic Association, vol. 2(1), pages 83-100, March.
    4. Louis S. Jacobson & Robert J. LaLonde & Daniel G. Sullivan, 1993. "Long-term earnings losses of high-seniority displaced workers," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 17(Nov), pages 2-20.
    5. John Duffy & Chris Papageorgiou & Fidel Perez-Sebastian, 2004. "Capital-Skill Complementarity? Evidence from a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 327-344, February.
    6. Ghaly, Mohamed & Dang, Viet Anh & Stathopoulos, Konstantinos, 2020. "Institutional investors' horizons and corporate employment decisions," Journal of Corporate Finance, Elsevier, vol. 64(C).
    7. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi, 2022. "Tax enforcement and corporate employment: Evidence from a quasi-natural experiment in China," China Economic Review, Elsevier, vol. 73(C).
    8. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    9. Chen, Yvonne Jie & Li, Pei & Lu, Yi, 2018. "Career concerns and multitasking local bureaucrats: Evidence of a target-based performance evaluation system in China," Journal of Development Economics, Elsevier, vol. 133(C), pages 84-101.
    10. Zhao Chen & Zhikuo Liu & Juan Carlos Suárez Serrato & Daniel Yi Xu, 2021. "Notching R&D Investment with Corporate Income Tax Cuts in China," American Economic Review, American Economic Association, vol. 111(7), pages 2065-2100, July.
    11. Benmelech, Efraim & Frydman, Carola & Papanikolaou, Dimitris, 2019. "Financial frictions and employment during the Great Depression," Journal of Financial Economics, Elsevier, vol. 133(3), pages 541-563.
    12. Elena Stancanelli, 2008. "Evaluating the impact of the French tax credit on the employment rate of women," SciencePo Working papers Main hal-03417077, HAL.
    13. Wang, Jingwen & Shen, Guangjun & Tang, Dunzhe, 2021. "Does tax deduction relax financing constraints? Evidence from China's value-added tax reform," China Economic Review, Elsevier, vol. 67(C).
    14. Stancanelli, Elena G.F., 2008. "Evaluating the impact of the French tax credit on the employment rate of women," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2036-2047, October.
    15. Ethan Lewis, 2011. "Immigration, Skill Mix, and Capital Skill Complementarity," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(2), pages 1029-1069.
    16. Camelia M. Kuhnen & Paul Oyer, 2016. "Exploration for Human Capital: Evidence from the MBA Labor Market," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 255-286.
    17. Greenwald, Bruce & Stiglitz, Joseph E, 1988. "Pareto Inefficiency of Market Economies: Search and Efficiency Wage Models," American Economic Review, American Economic Association, vol. 78(2), pages 351-355, May.
    18. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    19. Nuri Ersahin & Rustom M Irani, 2020. "Collateral Shocks and Corporate Employment [House prices, collateral, and self-employment]," Review of Finance, European Finance Association, vol. 24(1), pages 163-187.
    20. Hamermesh, Daniel S, 1989. "Labor Demand and the Structure of Adjustment Costs," American Economic Review, American Economic Association, vol. 79(4), pages 674-689, September.
    21. Elena Stancanelli, 2008. "Evaluating the impact of the French tax credit on the employment rate of women," PSE-Ecole d'économie de Paris (Postprint) hal-03417077, HAL.
    22. Elena Stancanelli, 2008. "Evaluating the impact of the French tax credit on the employment rate of women," Post-Print hal-03417077, HAL.
    23. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    24. Ohrn, Eric, 2019. "The effect of tax incentives on U.S. manufacturing: Evidence from state accelerated depreciation policies," Journal of Public Economics, Elsevier, vol. 180(C).
    25. Liu, Guanchun & Liu, Yuanyuan & Ye, Yongwei & Zhang, Chengsi, 2021. "Collateral menus and corporate employment: Evidence from China's Property Law," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 686-709.
    26. Ma, Hongmei & Gao, Qian & Li, Xiuzhen & Zhang, Yun, 2022. "AI development and employment skill structure: A case study of China," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 242-254.
    27. Fan, Ziying & Liu, Yu, 2020. "Tax Compliance and Investment Incentives: Firm Responses to Accelerated Depreciation in China," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 1-17.
    28. Feng, Chen & Ye, Yongwei & Tao, Yunqing, 2022. "Tax Authority Enforcement and Corporate Social Security Contributions: Evidence from China," Finance Research Letters, Elsevier, vol. 49(C).
    29. Elena Stancanelli, 2008. "Evaluating the impact of the French tax credit on the employment rate of women," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-03417077, HAL.
    30. Liao, Tianlong & Liu, Guanchun & Liu, Yuanyuan & Lu, Rui, 2023. "Environmental regulation and corporate employment revisited: New quasi-natural experimental evidence from China's new environmental protection law," Energy Economics, Elsevier, vol. 124(C).
    31. Eric Zwick & James Mahon, 2017. "Tax Policy and Heterogeneous Investment Behavior," American Economic Review, American Economic Association, vol. 107(1), pages 217-248, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi, 2022. "Tax enforcement and corporate employment: Evidence from a quasi-natural experiment in China," China Economic Review, Elsevier, vol. 73(C).
    2. Chen, Xiaoxiong & He, Feng & Liu, Guanchun & Ye, Yongwei, 2022. "The effect of downstream expansion on upstream employment: Quasi-natural experimental evidence from China’s Accelerated Depreciation Policy," Research in International Business and Finance, Elsevier, vol. 63(C).
    3. Feng, Chen & Ye, Yongwei & Bai, Caiquan, 2023. "Tax enforcement and corporate financial irregularities: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 88(C).
    4. Zhao, Lexin & Fang, Hongsheng, 2022. "Investment incentives and the relative demand for skilled labor: Evidence from accelerated depreciation policies in China," China Economic Review, Elsevier, vol. 73(C).
    5. Liu, Xiufen & Fang, Hongsheng & Zhao, Lexin & Xu, Wenli, 2023. "Do VAT cuts help stabilize employment? Evidence from China’s VAT rate reform," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 190-207.
    6. E. Mark Curtis & Daniel G. Garrett & Eric C. Ohrn & Kevin A. Roberts & Juan Carlos Suárez Serrato, 2021. "Capital Investment and Labor Demand," NBER Working Papers 29485, National Bureau of Economic Research, Inc.
    7. Chen, Xiaoxiong & Mu, Jinghao & Liu, Guanchun & Liu, Yuanyuan, 2024. "Bank liability structure and corporate employment: Evidence from a quasi-natural experiment in China," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    8. Li, Hongbin & Meng, Lingsheng, 2022. "Skill biased tax policy change: Labor market effects of China’s VAT reform," Labour Economics, Elsevier, vol. 78(C).
    9. Lehmann, Etienne & Marical, François & Rioux, Laurence, 2013. "Labor income responds differently to income-tax and payroll-tax reforms," Journal of Public Economics, Elsevier, vol. 99(C), pages 66-84.
    10. Tang, Meili & Wang, Yu, 2022. "Tax incentives and corporate social responsibility: The role of cash savings from accelerated depreciation policy," Economic Modelling, Elsevier, vol. 116(C).
    11. He, Fan & Zeng, Xin & Xue, Jingwen & Xu, Jianbin, 2024. "The hidden cost of corporate tax cuts: Evidence from worker health in China," China Economic Review, Elsevier, vol. 86(C).
    12. Karine Briard, 2020. "L’élasticité de l’offre de travail des femmes en France. Petite revue de méthodes et de résultats," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 39-72.
    13. Liu, Guanchun & Liu, Yuanyuan & Ye, Yongwei & Zhang, Chengsi, 2021. "Collateral menus and corporate employment: Evidence from China's Property Law," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 686-709.
    14. Ai-Thu Dang & Jean-Marie Monnier, 2011. "Gender Regimes and Welfare States in France: A historical perspective," Working Papers hal-04140939, HAL.
    15. Zuo, Shengqiang & Wu, Bangzheng & Feng, Jun, 2023. "Does government reduction of the corporate income tax rate increase employment? Evidence from China," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 365-372.
    16. Tao, Yunqing & Yang, Wei & Ye, Yongwei & Kong, Dongmin, 2024. "The Shock of US-China trade war and the job Market: Downstream shrinkage and upstream employment," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 96(C).
    17. Ye, Yongwei & Li, Chaoqun & Li, Xiaofan & Tao, Yunqing & Wu, Haitao, 2024. "The role of tax enforcement on green innovation: Evidence from the consolidation of state and local tax bureau (CSLTB)," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 221-232.
    18. Zhao, Zhiqi & Yue, Yong & Wang, Wangshuai, 2024. "Unintended consequences of tax incentives on firms' human capital composition: Evidence from China," China Economic Review, Elsevier, vol. 84(C).
    19. Qi, Yu & Zhang, Jianshun & Chen, Jianwei, 2023. "Tax incentives, environmental regulation and firms’ emission reduction strategies: Evidence from China," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    20. Huang, Jianye & Li, Yuting & Wang, Shuai & Zhang, Jingkun, 2024. "Tax credits for employee education expenses and firm-specific human capital accumulation: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 96(PB).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:45:y:2024:i:1:p:414-427. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.