Abstract: Labor skill premium is a critical determinant of income distribution. Investigating the impact of capital-biased tax incentives on labor skill premium is of great importance for designing tax policies that can simultaneously promote enterprise development and improve income distribution. Using the accelerated depreciation policy for fixed assets as a quasi-natural policy setting, this study examines the impact of capital-biased tax incentives on labor skill premium based on a sample of Chinese A-share listed firms in Shanghai and Shenzhen from 2011 to 2023. The results show that the accelerated depreciation policy for fixed assets significantly increases firms’ labor skill premium. This effect is more pronounced among firms with higher financial risks, stronger market power within their industries, and lower regional tax enforcement intensity. Mechanism analysis reveals that the accelerated depreciation policy for fixed assets raises labor skill premium through two channels. First, by enhancing capital-skill complementarity, the policy alters the structure of labor skill demand and increases the relative demand for skilled workers, thereby widening the labor skill premium. Second, by inducing skill-biased technological progress, the policy improves the productivity of high-skilled labor, increasing their marginal output relative to low-skilled labor and consequently expanding the labor skill premium. Therefore, policy efforts should not only strengthen vocational training to enhance the employment competitiveness of low-skilled workers and promote the coordination between tax system optimization and labor market efficiency, but also implement differentiated regulatory strategies based on firm heterogeneity, improve antitrust oversight and tax administration mechanisms, and ultimately foster employment equity and advance common prosperity.

Key words: tax policy, tax incentives, accelerated depreciation for fixed assets, labor skill premium, capital-biased