The influence of income tax incentives on small and low-profit enterprises’ production factor investment

Abstract

Small and low-profit enterprises (SLEs) are critical and active market participants throughout the economy and wider society. To help SLEs thrive, China continues to expand the scope of its tax incentives. This study investigates the influence of a particular tax incentive – the Income Tax Incentive on Small and Low-profit Enterprises – to identify the impact of tax incentives on investment in labor input and fixed assets. Using a staggered difference-in-differences estimation strategy, we found that tax incentives significantly increase investments in labor input and fixed assets. The impact was stronger for state-owned, non-technology-intensive, and manufacturing enterprises.