The Effect Of Changes In Corporate Income Tax Rates On The Labor Share

The report at 19th CPC National Congress states:Insist on the simultaneous growth of residents' income while economic growth and the simultaneous increase of labor compensation while increasing labor productivity.Raising people's income is an important part of gradually realizing the goal of common prosperity.The labor income share measures the proportion of labor income that is value added,which is an important indicator of labor welfare.However,the changing trend of China's labor income share is not synchronized with economic development.The labor income share in china declined since the mid-1990s It is of great practical significance to investigate the underlying determinants of labor income share.Tax policy is an important tool for macroeconomic policy.With the arrival of the Trump tax reform and the global tax reduction wave,how will corporate income tax affect the labor income share?This is an important issue that needs to be studiedFirstly,this paper discusses the overall impact of changes in corporate income tax rates on the labor income share and try to find the the theoretical mechanism of it.Then analyzes the heterogeneity of the enterprise,the industry and the region,and puts forward five hypotheses:Hypothesis 1:The decline of corporate income tax rate will decrease the labor income share,and the increase of tax rate will lead to the increase of the labor income share.Hypothesis 2:The impact of changes in corporate income tax rates on the labor income share of small-size companies will be greater than that of large-size companies.Hypothesis 3:The impact of changes in corporate income tax rates on the labor income share may not same between manufacturing and non-manufacturing industries.Hypothesis 4:The impact of changes in corporate income tax rates on the labor income share may not same between different financial development environments Hypothesis 5:The impact of changes in corporate income tax rates on the labor income share may not same between different institutional environmentsSecondly,in the empirical part,this paper uses the reform of corporate income tax in 2008 and builds the DID mode with the panel data of listed corporations in china from 2003 to 2011.The results show that:(1)In general,the decline in income tax rate has significantly lead companies to reduce the labor income share;but the increase in tax rate has no obvious effect on the labor share.(2)In the channel mechanism,enterprise technology innovation is the main channel,and the capital deepen of companies is an important channel(3)From the dynamic perspective,the decline in corporate income tax rates has a long-lasting effect on reducing the labor income share,this effect lasts for more than 4 years.(4)At the individual level,the decline of corporate income tax rate has a stronger decrease influence on the corporate labor share of small-scale companies,but has no obvious influence on large-scale companies.(5)At the industry level,the decline of corporate income tax rate has a stronger decrease effect on non-manufacturing enterprises,but has no obvious influence on manufacturing enterprises.(6)At the region level,the decline of corporate income tax rate has only decrease the coporate labor share in areas with poor financial development environments and poor institutional environment,but has no siginificant influence in areas with better financial development environments and institutional environmentThe enlightenment are as follows:(1)The government should improve labor quality,such as strengthening education and training,as it can reduce the elasticity of capital and labor and make capital and technology more complementary.This will help improve income distribution.(2)Give priority to talent policies for smaller enterprises and non-manufacturing companies,such as focusing on talent training,providing training platforms,improving talent introduction policies,and improving labor quality.(3)In addition,strengthen the regional institutional environment and financial development environments,as it can weaken the negative impact of the decline in income taxes.(4)Pay attention to income redistribution methods.The first is to provide public services,such as the social security service system and the provision of employment opportunities,so that laborers can obtain more tax benefits.This can help adjust the national income distribution between laborers and capitalist.The second is to strengthen the adjustment of personal income tax,such as improving the progressive income tax system and labor income tax credits,etc.