Do corporate income tax cuts decrease labor share? Regression discontinuity evidence from China

• 成果类型: Article
• 署名作者: Li, Bing; Liu, Chang; Sun, Stephen Teng
• 署名单位: Sun Yat Sen University; Renmin University of China; City University of Hong Kong
• 刊物名称: JOURNAL OF DEVELOPMENT ECONOMICS
• ISSN/ISSBN: 0304-3878
• DOI: 10.1016/j.jdeveco.2021.102624
• 发表日期: 2021
• 关键词: Corporate income tax cut; Offshore service outsourcing firms; regression discontinuity design; Capital deepening

摘要

Recent years have seen a sustained decline in the labor share around the world. This paper studies this trend by focusing on the effect of corporate income taxes on firm-level labor shares. From 2010 to 2013, the Chinese central government cut the corporate income tax rate in 21 cities for service firms whose revenue from outsourcing services offshore surpassed half of their total revenue. Leveraging a regression discontinuity design with proprietary administrative data, we find that a one percentage point decrease in the statutory corporate income tax rate induces a one percentage point decrease in the firm-level labor share. Firms respond to the tax cut by increasing their physical capital and bank borrowing while keeping their employment unchanged, consistent with a capital deepening process documented in recent theoretical models. Our results suggest that falling corporate income taxes could have contributed to the global decline in the labor share.