A recent paper by IIDPF’s researchers Zhao Ying, Lu Yuanping and Yang Guochao “How Does Tax Incentives Affect Division of Labor Within Firms?”, has been officially published in Journal of Management World, Issue 1, 2024.
Abstract
Division of labor is a significant driver of economic growth. While existing studies have primarily focused on the division of labor between firms, the within-firm division of labor has been largely overlooked. The shift from Business Tax to Value-Added Tax (VAT) in China, which eliminated repetitive taxation, introduced a tax incentive. This paper takes this reform as a starting point to explore whether it encourages division of labor within firms or leads to corporate spin-offs. This not only fills a gap in existing research but also provides empirical evidence from China on the within-firm division of labor. By constructing a dataset that includes business registration, tax information, corporate equity networks, and investment and financing data, this study uses a triple-difference method to address the issue. The findings reveal: (1) The VAT reform significantly fosters the within-firm division of labor, especially in firms with a longer duration. (2) The VAT reform reduces the tax burden on firms in two ways, reflected in a significant increase in both branches identified as small taxpayers and as general taxpayers. (3) This division of labor is essentially an act of corporate spin-off, mainly driven by scale-biased tax incentives, with both owners and agents having the incentive to promote this phenomenon. (4) Firms, mainly private, tend to engage more in external associations, while their duration noticeably decreases. These analyses explain the characteristics of Chinese firms, such as rapid market entry, increasing interconnectedness, and shorter duration. In this context, some firms develop a reliance on tax policies, resorting to spin-offs to enjoy corresponding policy benefits, an important consideration for the future formulation and refinement of tax policies.
About Journal of Management World
Founded in 1985, Management World is an academic journal under the auspices of the Development Research Centre of the State Council, one of the first academic journals identified by the State Administration of Press, Publication, Radio, Film and Television and two of the "Top 100 Social Science Journals", an academic journal identified by the National Natural Science Foundation of China, and one of the first key funded journals of the National Social Science Foundation of China identified by the National Office of Philosophy and Social Science Planning. It is an academic journal recognised by the National Natural Science Foundation of China, and one of the first journals recognised by the National Philosophy and Social Science Planning Office as a key journal funded by the National Social Science Foundation. In the evaluation of three major social science journals such as CSSCI (Chinese Social Science Citation Index) in China, it has ranked the first place among management academic journals for many years; in the evaluation of journals of the Chinese Academy of Social Sciences, it has been regarded as the only "top journal" in the field of management. In terms of international influence, it is also among the top journals of its kind in China.