Local Individual Income Tax Revenue and Corporate R&D Expenditures：Evidence from China’s Unified Tax System Context

Prior studies have predominantly focused on the effects of corporate income tax on firms’ investment and innovation decisions, while the role of personal income tax has received limited scholarly attention. In China, firms are responsible for withholding and remitting personal income taxes on behalf of their employees, and regional disparities in personal income tax revenue arise mainly from income level variations rather than tax rate differences. Utilizing a panel of Chinese A－share listed firms from 2012 to 2021, this study examines the impact of local personal income tax revenue on corporate R&D investment. Baseline results indicate that higher local personal income tax revenue significantly reduces firms’ R&D expenditures, with this effect primarily driven by labor income tax. A difference－in－differences analysis exploiting the 2018 increase in the personal income tax threshold provides causal evidence supporting the baseline findings. Further heterogeneity analyses reveal that the adverse effect is more pronounced among financially constrained firms and firms exhibiting lower operating profitability. This study underscores the importance of fiscal revenue structure in shaping corporate innovation behavior.