Digital tax enforcement and reported labour compensation within firms: evidence from China's Golden Tax Phase III reform

Xu Weichen and Igor A. Mayburov

Journal of Economic Studies, 2026, 1-19

Abstract: PurposeThis study examines whether digital tax administration affects firms' reported labour-related payments. Specifically, it investigates the impact of China's Golden Tax Phase III (GTPIII) reform on the reported labour compensation share, measured as cash paid to and on behalf of employees relative to operating revenue. The study also explores the roles of social security compliance and firm characteristics in shaping this relationship.Design/methodology/approachThe analysis exploits the staggered implementation of the GTPIII reform across Chinese tax jurisdictions as a quasi-natural experiment. Using panel data on Chinese A-share listed firms, the study employs a multi-period difference-in-differences framework with firm and year fixed effects. The baseline model is supplemented by event-study analysis, Callaway–Sant’Anna difference-in-differences estimation, placebo tests, and a series of robustness checks.FindingsThe results indicate that the GTPIII reform significantly increases the reported labour compensation share. The effect remains robust to alternative outcome measures, winsorisation procedures, lagged-treatment specifications, and the exclusion of early pilot jurisdictions. Evidence further suggests that improved social security compliance may operate as a transmission mechanism, although its economic contribution is modest. The positive effect is stronger among firms with higher pre-reform tax-avoidance intensity and is concentrated in manufacturing and high-tech firms.Originality/valueThis study extends the literature on digital tax administration by demonstrating that digital tax enforcement influences labour-related reporting outcomes in addition to tax compliance. The findings provide new evidence that enhanced state information capacity contributes to the formalisation of labour payments and generates important non-fiscal effects within firms.

Keywords: Golden tax phase III reform; Digital tax administration; Reported labour compensation share; Labour payment intensity; Social security compliance; Corporate tax avoidance (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-03-2026-0308

DOI: 10.1108/JES-03-2026-0308

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