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ABSTRACT Research Question/Issue We take advantage of China's staggered rollout of the Golden Tax Phase (GTP) III reform to examine how enhanced tax governance through digitalization affects corporate labor investment efficiency (LIE). Research Findings/Insights Applying a staggered difference‐in‐differences approach to Chinese A‐share listed companies spanning from 2010 to 2017, our research reveals a significant improvement in LIE due to digitalized tax governance. Our path analysis demonstrates that the relationship between tax governance and LIE is mediated by enhancements in corporate governance and information quality. Notably, improved information quality exerts a more substantial influence than corporate governance. In addition to these mediated pathways, we identify a residual direct effect from digitalized tax governance to LIE. Theoretical/Academic Implications This study uncovers a causal relationship between digitalized tax governance and corporate LIE. It offers new insights into the broader effects of tax governance, specifically how businesses adjust their employment decisions when tax administration becomes more digitalized. Practitioner/Policy Implications This study highlights a positive externality of digitalized tax governance, offering valuable insights for policymakers aiming to optimize tax administration processes through information technology.
Yang et al. (2024) studied this question.