Tax Refund Incentives,Employment Dynamics and Cost Estimation:Evidence from the Uncredited VAT Refund Reform
As a component of the comprehensive tax and fee support policies,the uncredited VAT refund policy has played a pivotal role in assisting enterprises in overcoming challenges and enhancing their endogenous growth momentum.In recent years,policies aimed at expanding uncredited VAT refunds have been consecutively implemented,exhibiting features of higher frequency and larger scale in China.The actual uncredited VAT refunds returned to taxpayers'accounts have far exceeded expectations,significantly boosting market confidence.However,there has been a lack of in-depth exploration into the welfare impacts of the uncredited VAT refund policy,particularly regarding the extent to and the manner in which it affects labor employment.Theoretically,VAT refund,as a tax incentive policy,serves dual purposes.Firstly,it reduces the tax burden on corporate funds,thereby increasing internal cash flow and encouraging enterprises to invest in advanced equipment and new production lines.This in turn enhances their revenue,profitability,and production scale,ultimately leading to an increased demand for labor.Secondly,from the perspective of labor employment growth channels,the policy not only stimulates demand within existing enterprises,but also plays a significant role in promoting entry and exit of enterprises.VAT refund helps reduce production costs and facilitates new enterprises entry,thereby further promoting employment opportunities.Using the 2018 uncredited VAT refund reform as a natural experiment,this paper employs a difference-in-differences(DID)model to explore the impact of the policy on labor employment,its underlying mechanisms,and cost estimations.This paper reveals that the uncredited VAT refund policy significantly boosts labor employment,with a more pronounced increase in technical employees and highly skilled employees.A comprehensive set of robustness checks offers solid evidence to support the conclusion.Mechanism test results demonstrate that it is attributed to the policy's enhancement of corporate tax incentives,whichelevates enterprise revenue and profitability,thereby increasing labordemand.Furthermore,the employment effects of the uncredited VAT refund policy are primarily driven by the extension of employment opportunities,which is mainly attributed to the entry of new enterprises.Finally,Utilizing the empirical findings and a dynamic analysis of the VAT refund policy,we apply the Back-of-the-Envelope methodology to estimate the cost of tax refund required for each incremental unit of labor employment.A quantitative cost-benefit analysis demonstrates that the refund cost for each additional unit of labor employment averages around CNY 12,800-13,300.The efficiency of the uncredited VAT refund policy in promoting employment generally surpasses that of fiscal and tax policies in developed countries.Compared to previous research,this paper offers two key innovations.Firstly,it delves into the impact of the uncredited VAT refund policy on enterprise-level labor employment,exploring the sources of its employment promotion effects through industry-specific employment changes and dynamic decompositions.It offers a fresh perspective and empirical evidence for assessing tax relief measures aimed at stabilizing employment.Secondly,it estimates the refund cost per unit of increased labor employment and compares it across countries,considering the efficiency of employment promotion.Given the crucial importance of tax costs in employment policies,this paper carries significant policy implications in the context of implementing large-scale refund measures to stabilize employment and support enterprises.
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