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Tax incentives and corporate innovation: Evidence from China's value‐added tax reform

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  • Jun Wang
  • Congcong Liu
  • Zhuan Xie
  • Guangjun Shen

Abstract

Innovation is crucial for technological progress and economic development. Using the value‐added tax (VAT) reform in China as a policy shock, this study explores whether tax incentives are beneficial in promoting corporate innovation. We find that the VAT reform has a significant positive impact on corporate innovation, and the finding holds under a series of robustness checks. Mechanism analysis suggests that the VAT reform promotes firms' innovation activities mainly by alleviating financing constraints and amplifying research and development intensity. This study offers policy implications for using tax policies to stimulate corporate innovation.

Suggested Citation

  • Jun Wang & Congcong Liu & Zhuan Xie & Guangjun Shen, 2024. "Tax incentives and corporate innovation: Evidence from China's value‐added tax reform," Contemporary Economic Policy, Western Economic Association International, vol. 42(1), pages 183-202, January.
    • Handle: RePEc:bla:coecpo:v:42:y:2024:i:1:p:183-202
    DOI: 10.1111/coep.12631
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