IDEAS home Printed from https://ideas.repec.org/a/kap/jtecht/v40y2015i6p932-947.html
   My bibliography  Save this article

Tax credits and total factor productivity: firm-level evidence from Taiwan

Author

Listed:
  • Chia-Hui Huang

Abstract

We studied the effect of tax policy on the productivity of Taiwanese manufacturing firms from 2001 to 2008. First, we investigated the determinants of firm decisions on tax credit applications. By employing the dynamic random effect probit model, this study demonstrated that past tax credit use has exerted a causal effect on current tax credit use across various industries. Specifically, there has been a persistence use of tax credit among manufacturing firms in Taiwan. Second, we employed the panel instrumental variable approach to control for tax credit endogeneity and firm heterogeneity in determining firm productivity. The results indicated that firms’ tax credit use produced a positive and statistically significant effect on productivity. Finally, after categorising the firms as either electronics or non-electronics businesses, we observed that the marginal effect of tax credits has been associated with the productivity of electronics firms. This study demonstrated that tax credit use among Taiwanese firms has enhanced their productivity. This indicates that effective tax policy can promote national economic growth. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Chia-Hui Huang, 2015. "Tax credits and total factor productivity: firm-level evidence from Taiwan," The Journal of Technology Transfer, Springer, vol. 40(6), pages 932-947, December.
    • Handle: RePEc:kap:jtecht:v:40:y:2015:i:6:p:932-947
    DOI: 10.1007/s10961-014-9358-7
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10961-014-9358-7
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1007/s10961-014-9358-7?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Rachel Griffith & Stephen Redding & John Van Reenen, 2004. "Mapping the Two Faces of R&D: Productivity Growth in a Panel of OECD Industries," The Review of Economics and Statistics, MIT Press, vol. 86(4), pages 883-895, November.
    2. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54, January.
    3. Goel, Rajeev K. & Payne, James E. & Ram, Rati, 2008. "R&D expenditures and U.S. economic growth: A disaggregated approach," Journal of Policy Modeling, Elsevier, vol. 30(2), pages 237-250.
    4. Czarnitzki, Dirk & Hanel, Petr & Rosa, Julio Miguel, 2011. "Evaluating the impact of R&D tax credits on innovation: A microeconometric study on Canadian firms," Research Policy, Elsevier, vol. 40(2), pages 217-229, March.
    5. Richard Harris & Mary Trainor, 2005. "Capital Subsidies and their Impact on Total Factor Productivity: Firm‐Level Evidence from Northern Ireland," Journal of Regional Science, Wiley Blackwell, vol. 45(1), pages 49-74, February.
    6. Richard Ericson & Ariel Pakes, 1995. "Markov-Perfect Industry Dynamics: A Framework for Empirical Work," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(1), pages 53-82.
    7. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    8. Amil Petrin & Brian P. Poi & James Levinsohn, 2004. "Production function estimation in Stata using inputs to control for unobservables," Stata Journal, StataCorp LP, vol. 4(2), pages 113-123, June.
    9. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2010. "Multiple-Product Firms and Product Switching," American Economic Review, American Economic Association, vol. 100(1), pages 70-97, March.
    10. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    11. Girma, Sourafel & Gorg, Holger & Strobl, Eric, 2007. "The effect of government grants on plant level productivity," Economics Letters, Elsevier, vol. 94(3), pages 439-444, March.
    12. Stoneman, Paul & Diederen, Paul, 1994. "Technology Diffusion and Public Policy," Economic Journal, Royal Economic Society, vol. 104(425), pages 918-930, July.
    13. Girma, Sourafel & Gorg, Holger & Strobl, Eric, 2007. "The effects of government grants on plant survival: A micro-econometric analysis," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 701-720, August.
    14. Bloom, Nick & Griffith, Rachel & Van Reenen, John, 2002. "Do R&D tax credits work? Evidence from a panel of countries 1979-1997," Journal of Public Economics, Elsevier, vol. 85(1), pages 1-31, July.
    15. Richard Harris & Catherine Robinson, 2004. "Industrial Policy In Great Britain And Its Effect On Total Factor Productivity In Manufacturing Plants, 1990–1998," Scottish Journal of Political Economy, Scottish Economic Society, vol. 51(4), pages 528-543, September.
    16. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    17. Robert B. Archibald & Alfredo M. Pereira, 2003. "Effects of Public and Private R&D on Private-Sector Performance in the United States," Public Finance Review, , vol. 31(4), pages 429-451, July.
    18. Klette, Tor Jakob & Moen, Jarle & Griliches, Zvi, 2000. "Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies1," Research Policy, Elsevier, vol. 29(4-5), pages 471-495, April.
    19. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    20. Richard R. Nelson, 1959. "The Simple Economics of Basic Scientific Research," Journal of Political Economy, University of Chicago Press, vol. 67(3), pages 297-297.
    21. Parisi, Maria Laura & Schiantarelli, Fabio & Sembenelli, Alessandro, 2006. "Productivity, innovation and R&D: Micro evidence for Italy," European Economic Review, Elsevier, vol. 50(8), pages 2037-2061, November.
    22. Özçelik, Emre & Taymaz, Erol, 2008. "R&D support programs in developing countries: The Turkish experience," Research Policy, Elsevier, vol. 37(2), pages 258-275, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Richard Harris & John Moffat, 2020. "The impact of product subsidies on plant‐level total factor productivity in Britain, 1997–2014," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(4), pages 387-403, September.
    2. Richard Harris & Shengyu Li, 2016. "Government Assistance and Total Factor Productivity: Firm-level Evidence from China, 1998-2007," CEGAP Working Papers 2016_04, Durham University Business School.
    3. Duong Hoang Vu & Drahomíra Pavelková & Milan Damborský, 2023. "Tax holidays and profit-repatriation rates for FDI firms: the case of the Czech Republic," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-12, December.
    4. Richard Harris & Shengyu Li, 2019. "Government assistance and total factor productivity: firm-level evidence from China," Journal of Productivity Analysis, Springer, vol. 52(1), pages 1-27, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chia-Hui Huang & Tony Chieh-Tse Hou & Chih-Hai Yang, 2013. "FDI modes and parent firms' productivity in emerging economies:Evidence from Taiwan," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 22(8), pages 1240-1268, December.
    2. Li, Mingyang & Jin, Man & Kumbhakar, Subal C., 2022. "Do subsidies increase firm productivity? Evidence from Chinese manufacturing enterprises," European Journal of Operational Research, Elsevier, vol. 303(1), pages 388-400.
    3. Bettina Becker, 2013. "The Determinants of R&D Investment: A Survey of the Empirical Research," Discussion Paper Series 2013_09, Department of Economics, Loughborough University, revised Sep 2013.
    4. Spyros Arvanitis, 2013. "Micro-econometric approaches to the evaluation of technology-oriented public programmes: a non-technical review of the state of the art," Chapters, in: Albert N. Link & Nicholas S. Vonortas (ed.), Handbook on the Theory and Practice of Program Evaluation, chapter 3, pages 56-88, Edward Elgar Publishing.
    5. Beck, Mathias & Junge, Martin & Kaiser, Ulrich, 2017. "Public Funding and Corporate Innovation," IZA Discussion Papers 11196, Institute of Labor Economics (IZA).
    6. Jaan Masso & Amaresh K Tiwari, 2021. "Productivity Implications Of R&D, Innovation And Capital Accumulation For Incumbents And Entrants: The Case Of Estonia," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 130, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    7. Kancs, d’Artis & Siliverstovs, Boriss, 2016. "R&D and non-linear productivity growth," Research Policy, Elsevier, vol. 45(3), pages 634-646.
    8. Dimos, Christos & Pugh, Geoff & Hisarciklilar, Mehtap & Talam, Ema & Jackson, Ian, 2022. "The relative effectiveness of R&D tax credits and R&D subsidies: A comparative meta-regression analysis," Technovation, Elsevier, vol. 115(C).
    9. Daniel Gama e Colombo, 2016. "Impact Assessment of Tax Incentives to Foster Industrial Innovation in Brazil: The Case of Law 11,196/05," Working Papers, Department of Economics 2016_30, University of São Paulo (FEA-USP).
    10. Silva Filipe & Carreira Carlos, 2017. "Financial Constraints: Do They Matter to Allocate R&D Subsidies?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(4), pages 1-26, October.
    11. Czarnitzki, Dirk & Thorwarth, Susanne, 2012. "Productivity effects of basic research in low-tech and high-tech industries," Research Policy, Elsevier, vol. 41(9), pages 1555-1564.
    12. Thomas H. W. Ziesemer, 2021. "The Effects of R&D Subsidies and Publicly Performed R&D on Business R&D: A Survey," Hacienda Pública Española / Review of Public Economics, IEF, vol. 236(1), pages 171-205, March.
    13. Yang, Chih-Hai & Huang, Chia-Hui & Hou, Tony Chieh-Tse, 2012. "Tax incentives and R&D activity: Firm-level evidence from Taiwan," Research Policy, Elsevier, vol. 41(9), pages 1578-1588.
    14. Liu, Qing & Qiu, Larry D. & Wei, Xing & Zhan, Chaoqun, 2024. "The (dis)connection between R&D and productivity in China: Policy implications of R&D tax credits," Journal of Comparative Economics, Elsevier, vol. 52(1), pages 297-320.
    15. Mohamed Amara & Khaled Thabet, 2019. "Firm and regional factors of productivity: a multilevel analysis of Tunisian manufacturing," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 63(1), pages 25-51, August.
    16. Coad, Alex & Segarra, Agustí & Teruel, Mercedes, 2016. "Innovation and firm growth: Does firm age play a role?," Research Policy, Elsevier, vol. 45(2), pages 387-400.
    17. Amoroso, S., 2013. "Heterogeneity of innovative, collaborative, and productive firm-level processes," Other publications TiSEM f5784a49-7053-401d-855d-1, Tilburg University, School of Economics and Management.
    18. Baoqing Tang & Bo Gao & Jing Ma, 2021. "The impact of export VAT rebates on firm productivity: Evidence from China," The World Economy, Wiley Blackwell, vol. 44(10), pages 2798-2820, October.
    19. Cameron Hepburn & Jacquelyn Pless & David Popp, 2018. "Policy Brief—Encouraging Innovation that Protects Environmental Systems: Five Policy Proposals," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 12(1), pages 154-169.
    20. Ondřej Dvouletý & Stjepan Srhoj & Smaranda Pantea, 2021. "Public SME grants and firm performance in European Union: A systematic review of empirical evidence," Small Business Economics, Springer, vol. 57(1), pages 243-263, June.

    More about this item

    Keywords

    Tax; Productivity; Panel data; Research and development (R&D); H25; L20; C23;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:jtecht:v:40:y:2015:i:6:p:932-947. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.