Abstract:Capital deepening is an inevitable trend to cope with economic downturn and demographic challenges. Therefore, based on the data of China’s A share listed companies from 2008 to 2020, using the gradual implementation of Golden Tax Phase III across the country as a quasi natural experiment, we empirically examine the impact of tax collection and administration digitization on firms’ capital to labor ratios by using the asymptotic double difference method. It is found that tax administration digitization increases firms’ exogenous financing through the governance effect, which in turn enhances firms’ capital labor ratio. Heterogeneity analysis shows that the digitization of tax administration has a greater effect on the capital labor ratio of labor intensive firms, firms in areas with weak tax administration, and firms with strong tax pass through ability. The findings of the study help to clarify the mechanism of the impact of tax administration on the capital labor ratio and factor structure of enterprises, provide an effective explanation for the digitization of tax administration to help economic transformation and upgrading, and enrich the economic consequences of the digitization of tax administration to provide theoretical references for the promotion of tax digitization decision making.