Impact of Inclusive Fee Reduction on Small Businesses’ Productivity: Evidence from the Reduction of Employment Security Funds for Disabilities

Reducing the tax burden is a crucial strategy to enhance the vitality of small and micro enterprises (SMEs). While existing literature has explored the positive effects of tax cuts on these enterprises, it has largely overlooked the role of inclusive fee reductions (IFR). This study investigates the impact of inclusive fee reductions on SMEs’ total factor productivity (TFP), drawing on evidence from the 2014 reduction in the Employment Security Fund for Disabilities (ESF). The findings show that ESF significantly improves the TFP of small and micro enterprises. Mechanism analysis reveals that this reduction alleviates financing constraints and incentivizes research and development (R&D) investment, thereby enhancing the TFP. Further analysis of intensive margin effects suggests that the reduction in the Residual Security Fund strengthens small and micro enterprises’ market survival and business performance. Additionally, it works in Synergy with existing tax reduction policies to foster the healthy development of these enterprises. The conclusions offer valuable policy recommendations for optimizing tax and fee reduction measures and for implementing a comprehensive policy package that supports the sustained growth of small and micro enterprises.