The impact of an accelerated depreciation tax policy on employment: Evidence from China

Jing Zeng, Fangjie Dai and Kam C. Chan

Journal of Asian Economics, 2023, vol. 86, issue C

Abstract: We examine the impact of an accelerated depreciation tax policy (ADP) on employment. As a tax incentive policy, we expect an ADP to impact firm behavior significantly, but its effect on employment remains uninvestigated. Leveraging the two-stage implementation of an ADP in selected industries in China in 2014 and 2015 and using a difference-in-differences research design, we find that: 1) the ADP significantly increases employment, which is consistent with the output effect hypothesis; and 2) the ADP increases firms’ labor demand, mainly by stimulating investment in fixed assets and easing their financial constraints. Additional analysis suggests that the impact of ADP on employment is more salient for small firms, non-state-owned firms, and high growth firms, and skilled labor employment, indicating that the ADP is more effective for firms with high financial constraints and hiring skilled labor to accompany the increase in capital investment.

Keywords: Accelerated depreciation tax policy; Employment; Investment of fixed assets; Financing constraints (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:86:y:2023:i:c:s1049007823000271

DOI: 10.1016/j.asieco.2023.101607

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