An innovation value chain perspective for disentailing the effects of fiscal incentives on labor income share

Fiscal incentives are known to stimulate corporate dynamism. However, their distributional effects on labor income share remain theoretically ambiguous and empirically underexplored. Using China’s value-added tax (VAT) credit refund policy and National Tax Survey microdata, this paper evaluates the impact on labor income share through a fixed-effects panel regression. The empirical results demonstrate that the VAT refund significantly increases labor income share. By tracing the transmission mechanism along the innovation value chain via mediation path analyses, this paper documents a sequential accumulation of policy benefits. Notably, the commercialization phase emerges as the dominant channel for labor rent sharing, surpassing both initial research and development and technological application. The findings suggest that tax instruments can be designed to align economic efficiency with a more equitable distribution of income.