Does government reduction of the corporate income tax rate increase employment? Evidence from China

Using 2.21 million pieces of data from the National Bureau of Statistics of China's Industrial Enterprises Database, compiled during 1998-2013, we apply a static panel model and a dynamic panel model to build upon previous research by more accurately examining the impact of changes in corporate income tax rate 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-to-asset ratio, and enter-prise return on assets. Moreover, tax reduction can increase the employment of private and collective enterprises, but it has no significant impact on the employment of state-owned enter-prises. Conversely, it can inhibit the employment of foreign, Hong Kong, Macau, and Taiwan enterprises.