Does Government Reduce the Corporate Income Tax Rate Increase Employment? Evidence from China

Using 2.21 million units of data from the National Bureau of Statistics’ China Industrial Enterprises Database, during 1998-2013, we adopt the static panel model and the dynamic panel model to more accurately examine the impact of changes in corporate income tax rates on employment. The endogeneity problem is solved by using a variable set. The empirical results show that reducing the corporate income tax rate can increase the overall employment by affecting employee wages, enterprise debt asset ratio and return on assets. Moreover, tax reduction can only increase the employment of private and collective enterprises, but it has no significant impact on the employment of state-owned enterprises. On the contrary, it can inhibit the employment of foreign, Hong Kong, Macau, and Taiwan enterprises