Abstract: Increasing labor income share is the core of optimizing the income distribution pattern and achieving common prosperity. Utilizing the implementation of the new Budget Law in 2015 as a policy shock on the reform of local government debt management system, this paper examines the impact of local government debt management system reform on the labor income share of enterprises. The findings show that the reform of local government debt management system has remarkably escalated the proportion of labor income attributed to enterprises. In the regions with greater financial pressure or with worse institutional environment, and in the enterprises with stronger financing constraints, the promoting effect of the reform of local government debt management system on the labor income of enterprises is more pronounced. As far as the mechanism is concerned, the reform of local government debt management system can help to reduce the strength of government taxes and non-tax revenue administration and constrain the increase of the implicit debt of local governments, thus helps enterprises to improve their financing availability and alleviate their financing constraints. In this way enterprises will invest more resources into labor factors, thereby increase the share of labor income. Therefore, the central government should continuously improve the regulatory system for local government debt, effectively control the scale of implicit local government debt, and alleviate the competition between the government and enterprises in the credit market.

Key words: local government debt management system, labor income share, financing constraints, human capital investment