Innovation-oriented Tax Cuts and Employment Structure Upgrade

With the increasingly prominent role of innovation in China’s economic and social development, how to promote the clustering of highly skilled labor to the main innovation sector is worth exploring in depth. In this paper, based on a quasi-natural experiment of the 2018 R&D expenses plus deduction reform, we investigate the upgrading effect of innovation-oriented tax cuts on firms’ employment structure using data from A-share listed companies for 2016-2019. The results show that tax incentives significantly increase the proportion of graduate educated labor in the employment structure of firms, and promote the accumulation of human capital. Analysis of heterogeneity indicates that the policy effects are more pronounced for non-SOE and main board listed companies. Besides, we find that the reform does not reduce the total employment size of firms, nor has a substitution effect on the lower-educated labor force. From a comprehensive perspective, the reform not only prompted firms to increase R&D investment, but also helped improve total factor productivity and profitability efficiency. The conclusions of this paper provide empirical support for further promoting innovation-driven development through the implementation of structural tax cuts.