Social Insurance Contribution Enforcement and Corporate Tax Avoidance: Evidence from China’s Tax Collection Reform

This study examines whether stricter enforcement of mandatory social insurance contributions affects corporate income tax behavior in China. In the Chinese institutional context, mandatory social insurance refers to payroll-based employer and employee contributions to five statutory programs: basic pension insurance, basic medical insurance, work-injury insurance, unemployment insurance, and maternity insurance. These programs are directly related to social sustainability because they finance old-age income security, medical protection, workplace injury compensation, unemployment support, maternity protection, and labor-market stability. Using China’s 2018 social insurance collection reform as a quasi-natural experiment, we analyze A-share listed companies from 2014 to 2024 through a difference-in-differences design based on differential exposure between private firms and state-owned enterprises. To assess the reliability of the identification strategy, we employ firm and year fixed effects, event-study analysis, placebo tests, alternative measures of tax avoidance, and propensity score matching difference-in-differences robustness checks. The findings show a tax-fee seesaw effect: private firms subject to extensive regulatory scrutiny respond to more rigorous enforcement of social insurance contributions by increasing corporate income tax avoidance. Analysis of the mechanisms shows that the Whited-Wu index of financial constraints partially explains this phenomenon. The effect is more pronounced in firms with higher labor costs and greater administrative expense intensity, indicating that the increased response is driven by labor cost exposure and organizational discretion. By contrast, the effect is weaker among firms audited by the Big Four accounting networks—Deloitte, PricewaterhouseCoopers, Ernst & Young, and KPMG—indicating that high-quality external audits constrain aggressive tax planning. Regionally, the effect is most pronounced in eastern China, where markets, labor costs, and tax-planning services are more developed. The findings contribute to the sustainable development literature by demonstrating that reforms designed to strengthen social insurance sustainability can unintentionally weaken tax compliance if payroll contributions, tax administration, and corporate financial pressures are not coordinated. The study highlights the importance of integrated fiscal governance for achieving socially sustainable and fiscally balanced development.