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

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  • 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
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    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.

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    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

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