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Migrant workers play a vital role in the development of countries such as China. However, they often face greater barriers in entrepreneurship. Yet, few studies have focused on the effect of institutional factors on migrant workers' entrepreneurial behaviors. To address this gap, this study concentrates on the role of taxation.

This study takes the agricultural tax abolition reform implemented in rural China since 2004 as an exogenous shock and uses the difference-in-difference (DID) method to examine its effect on migrant workers' entrepreneurship based on longitudinal data from the China Health and Nutrition Survey (CHNS).

We find that the reform significantly improves the probability of migrant workers engaging in entrepreneurship. Heterogeneity analysis reveals that the reform exerts a notably more pronounced positive impact on male, younger and migrant workers in the Western region. Further analysis reveals that the three main mechanisms are increased household income, female human capital accumulation and increased social capital, including social networks and social trust.

This study is first to offers an institutional perspective on the determinants of migrant workers' entrepreneurship in China. Additionally, the study can provide insights for policymaking intended to support employment and entrepreneurship among low-skill migrant workers.