The invisible hand of transfer: The income distribution effect of water resource fee to tax

Abstract

Income distribution is the foundation of equitable people's livelihoods, and improving the income distribution system is a key pathway to achieving common prosperity for all. This paper uses micro-level data from listed companies in China's industrial sector, along with macroeconomic data from 2011 to 2019, to examine the impact of the water resource fee-to-tax reform pilot policy on changes in the labor income share. The study finds that the policy reduces the labor income share through both the factor substitution effect and the strengthening of corporate monopoly power. Heterogeneity analysis indicates that the income distribution effects of the reform are more pronounced in large-scale enterprises, firms with stronger labor bargaining power, labor-intensive industries, and regions experiencing water resource overexploitation. To further clarify the broader economic consequences of the pilot policy, this paper also investigates the impact of the water resource tax reform on human capital structure, regional labor mobility, and intra-firm wage disparities.