SOCIAL INSURANCE CONTRIBUTIONS AND FIRM INVESTMENT: A QUASI-EXPERIMENTAL EVIDENCE FROM CHINA

This paper studies the impact of firm social insurance contribution on investment by exploiting a contribution collection administration reform in China. Using a difference-in-differences strategy, we find that Chinese firms increase social insurance contribution after the reform that the premiums collection duty is transferred from local social insurance administrations to tax bureaus for better enforcement. As a consequence, the enforced increase in contribution decreases firm investment significantly. On average, a one percentage point increase in social insurance contribution decreases firm investment by 1.5 percentage points. The effects are more pronounced among firms with higher manufacturing costs or tighter financial constraints.