Tax Enforcement Digitalisation and Corporate Employment: Evidence From China's Golden Tax Project <scp>III</scp>

ABSTRACT We examine the impact of tax enforcement digitalisation on corporate employment by exploiting the quasi‐natural experiment of the Golden Tax Project III (GTP III) in China. Our findings reveal that the implementation of GTP III results in a 3.9% decrease in corporate employment. Moreover, we find that GTP III crowds out labour demand by increasing precautionary cash holdings and decreasing fixed asset investment in response to heightened tax‐related uncertainty. From a structural perspective, GTP III reduces employment for individuals without a graduate degree and for employees in non‐R&amp;D and non‐technical departments, and generally alleviates over‐employment. These findings suggest that digital tax enforcement, while improving tax administration, generates unintended labour market frictions, reducing overall employment but optimising firms' human capital structure. Our study expands the research on the microeconomic effects of digital tax enforcement and emphasises the importance of considering short‐term employment pressures when promoting public policy digitalisation.