The Impact of 2009 VAT Reform on Enterprise Investment and Employment – Empirical Analysis Based on Chinese Tax Survey Data

Wang Dehua, Wu Han


The article analyzes the impact of the 2009 VAT reform in China on investment and employment. This reform was a key step in improving the VAT tax system in the long term, and one of the key measures to structurally reduce taxes in response to the global financial crisis in the short term. The data for this analysis were provided by the “National Tax Survey” jointly conducted by the Chinese Ministry of Finance and State Administration of Taxation. We measured the impact of the VAT reform using the difference-in-differences method: we compared the difference between the experimental group and the control group before and after the reform. There were two kinds of organizations in our control group. The first kind consisted of enterprises that did not pay the VAT and small-scale VAT-paying enterprises that did not subtract the input taxes for fixed assets investment. The second kind comprised organizations that had not been included in pilot experiments before 2009 and foreign-invested corporations that were allowed to deduct the input tax for fixed asset investment before and after 2009. The experimental group consisted of ordinary VAT-paying enterprises that had not been included in the pilot study before 2009 and were affected by the 2009 reform. Our estimations lead us to the conclusion that the VAT tax reform of 2009 significantly enhanced the companies’ physical investment in machinery and equipment, but had no impact on employment. When comparing physical investment and employment in 2007 with 2008 and 2009, we detected a downward trend, which may reflect the impact of the global financial crisis on Chinese business. The total corporate profits and profit margins have little impact on business investment and employment, while the asset size and the tax burden show a significant positive impact. Thus, the reform significantly increased business investment in fixed assets, but had no obvious effect on employment.

For citation

Wang Dehua, Wu Han. The Impact of 2009 VAT Reform on Enterprise Investment and Employment – Empirical Analysis Based on Chinese Tax Survey Data. Journal of Tax Reform. 2019;5(2):166–176. DOI: 10.15826/jtr.2019.5.2.066

Article info

Received May 17, 2019; accepted August 11, 2019


value-added tax reform, investment in fixed assets, employment, difference-in-differences method


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