IDEAS home Printed from https://ideas.repec.org/p/hal/wpaper/hal-04066831.html
   My bibliography  Save this paper

China's VAT Reform and Its Effects on Enterprises' Tax Burden and Innovation

Author

Listed:
  • Haibo Feng

    (Jinan University [Guangzhou])

  • Sheng Liu

    (Guangdong University of Foreign Studies)

  • Fei Xu

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

The impact of China's value-added tax (VAT) reform on enterprise innovation is the result of a combination of tax cuts and various endogenous incentives. In this study, we find evidence that China' s VAT reform largely reduced the tax burden of firms but had a differing impact on the manufacturing and service industries. The tax burden on manufacturing enterprises dropped significantly, but the burden on the service industry did not change markedly. Furthermore, China's VAT reform also had a significant positive impact on corporate innovation in both the service and manufacturing industries. However, these effects were significantly greater on the manufacturing industry. Meanwhile, China's VAT reform did not alleviate the tax burden on all enterprises. For enterprises facing an increased burden of tax, the reform can help stimulate enterprise innovation if the enterprise has sufficient capital, whereas the impact coefficient and significance level are considerably lower than that for enterprises in which the tax burden had reduced. If an enterprise has insufficient capital, VAT reform has little effect on enterprise innovation. Finally, we show that China's VAT reform exerted different influences on the innovation behaviour of heterogeneous enterprises.

Suggested Citation

  • Haibo Feng & Sheng Liu & Fei Xu, 2019. "China's VAT Reform and Its Effects on Enterprises' Tax Burden and Innovation," Working Papers hal-04066831, HAL.
    • Handle: RePEc:hal:wpaper:hal-04066831
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-04066831
    as

    Download full text from publisher

    File URL: https://sciencespo.hal.science/hal-04066831/document
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Howell, Anthony, 2016. "Firm R&D, innovation and easing financial constraints in China: Does corporate tax reform matter?," Research Policy, Elsevier, vol. 45(10), pages 1996-2007.
    2. Christof Ernst & Katharina Richter & Nadine Riedel, 2014. "Corporate taxation and the quality of research and development," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 694-719, August.
    3. Joshua D. Angrist & Jörn-Steffen Pischke, 2014. "Mastering ’Metrics: The Path from Cause to Effect," Economics Books, Princeton University Press, edition 1, number 10363.
    4. Gregory Tassey, 2007. "Tax incentives for innovation: time to restructure the R&E tax credit," The Journal of Technology Transfer, Springer, vol. 32(6), pages 605-615, December.
    5. Keen, Michael & Lockwood, Ben, 2010. "The value added tax: Its causes and consequences," Journal of Development Economics, Elsevier, vol. 92(2), pages 138-151, July.
    6. Tsai, Kuen-Hung & Wang, Jiann-Chyuan, 2009. "External technology sourcing and innovation performance in LMT sectors: An analysis based on the Taiwanese Technological Innovation Survey," Research Policy, Elsevier, vol. 38(3), pages 518-526, April.
    7. Robert Atkinson, 2007. "Expanding the R&E tax credit to drive innovation, competitiveness and prosperity," The Journal of Technology Transfer, Springer, vol. 32(6), pages 617-628, December.
    Full references (including those not matched with items on IDEAS)

    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. Haibo Feng & Sheng Liu & Fei Xu, 2019. "China's VAT Reform and Its Effects on Enterprises' Tax Burden and Innovation," SciencePo Working papers Main hal-04066831, HAL.
    2. Feng, Haibo & Liu, Sheng & Xu, Fei, 2022. "China’s VAT reform, and Its Effects on Enterprises’ Tax Burden and Innovation," Umeå Economic Studies 1008, Umeå University, Department of Economics, revised 24 Oct 2024.
    3. Ivus, Olena & Jose, Manu & Sharma, Ruchi, 2021. "R&D tax credit and innovation: Evidence from private firms in india," Research Policy, Elsevier, vol. 50(1).
    4. Albert N. Link & John T. Scott, 2013. "Employment growth from public support of innovation in small firms," Chapters, in: Public Support of Innovation in Entrepreneurial Firms, chapter 3, pages 41-64, Edward Elgar Publishing.
    5. Tea Petrin & Dragana Radicic, 2023. "Instrument policy mix and firm size: is there complementarity between R&D subsidies and R&D tax credits?," The Journal of Technology Transfer, Springer, vol. 48(1), pages 181-215, February.
    6. Mardan, Mohammed & Stimmelmayr, Michael, 2020. "Tax competition between developed, emerging, and developing countries – Same same but different?," Journal of Development Economics, Elsevier, vol. 146(C).
    7. Barry Bozeman & Albert N. Link, 2015. "Toward an assessment of impacts from US technology and innovation policies," Science and Public Policy, Oxford University Press, vol. 42(3), pages 369-376.
    8. José Guimón, 2009. "Government strategies to attract R&D-intensive FDI," The Journal of Technology Transfer, Springer, vol. 34(4), pages 364-379, August.
    9. Dongmin Kong & Mengxu Xiong & Ni Qin, 2023. "Tax incentives and firm pollution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(3), pages 784-813, June.
    10. Yun Jeong Choi & Jinook Jeong, 2015. "Testing for the Ratchet Effect in the R&D Tax Credit," International Economic Journal, Taylor & Francis Journals, vol. 29(2), pages 327-342, June.
    11. Martínez-Román, Juan A. & Gamero, Javier & Tamayo, Juan A. & Delgado-González, Loreto, 2020. "Empirical analysis of organizational archetypes based on generation and adoption of knowledge and technologies," Technovation, Elsevier, vol. 96.
    12. Albert N. Link & John T. Scott, 2013. "Employment growth from the Small Business Innovation Research program," Chapters, in: Public Support of Innovation in Entrepreneurial Firms, chapter 4, pages 65-88, Edward Elgar Publishing.
    13. 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.
    14. Junguo Shi & Xinyi Yuan & Bert M. Sadowski & Kou Kou & Xuhua Hu & Sihan Li & Shanshan Dou, 2022. "VAT Reform, Regional Ownership Structure, and Industrial Upgrading: Evidence From Firms in Northeast China," SAGE Open, , vol. 12(2), pages 21582440221, April.
    15. José Guimón, 2007. "Government Strategies to Attract R&D-Intensive FDI," Policy Papers del Instituto Complutense de Estudios Internacionales 07-03, Universidad Complutense de Madrid, Instituto Complutense de Estudios Internacionales.
    16. Beestermöller, Matthias, 2017. "Striking Evidence? Demand Persistence for Inter-City Buses from German Railway Strikes," Discussion Papers in Economics 31768, University of Munich, Department of Economics.
    17. Qingqian He & Qing Meng & William Flatley & Yaqian He, 2022. "Examining the Effects of Agricultural Aid on Forests in Sub-Saharan Africa: A Causal Analysis Based on Remotely Sensed Data of Sierra Leone," Land, MDPI, vol. 11(5), pages 1-20, April.
    18. Stefano Clò & Tommaso Reggiani & Sabrina Ruberto, 2024. "Consumption Feedback and Water Saving: A Field Intervention Evaluation in the Metropolitan Area of Milan," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(9), pages 2259-2308, September.
    19. Combey, Adama, 2020. "Evaluation De L’Ecart De Tva Au Togo [Evaluation Of The Vat Gap In Togo]," MPRA Paper 101478, University Library of Munich, Germany.
    20. Yang Li & Yuanzhu Wang & Rajah Rasiah, 2023. "Research on the Influence of Tax Incentives and Financing Constraints on NEEQ Enterprises’ Innovation," Sustainability, MDPI, vol. 15(3), pages 1-19, February.

    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:hal:wpaper:hal-04066831. 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: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    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.