We examine how China’s Golden Tax Project Phase III (GTP III) affects non-listed firms’ R&D hiring and innovation. Using the staggered rollout of GTP III across regions in a difference-in-differences research design, we find that strengthened tax enforcement significantly reduces the share and number of R&D-related job postings. The effect is weaker in concentrated industries and for firms with better financing access, but stronger in regions with stricter legal enforcement. Reduced R&D hiring translates into fewer invention patents. Our findings reveal an unintended consequence of digitalized tax administration: heightened compliance pressures constrain firms’ innovation capacity.
Hrazdil et al. (Wed,) studied this question.