Journal
JOURNAL OF ASIAN ECONOMICS
Volume 71, Issue -, Pages -Publisher
ELSEVIER
DOI: 10.1016/j.asieco.2020.101245
Keywords
Tax incentive; R&D investment; Firm innovation; China
Categories
Funding
- National Natural Science Foundation of China [71673224, 71403220, 71703169, 71973153]
- National Social Science Foundation of China [19ZDA070]
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We estimate the effect of R&D tax incentives on firm-level R&D expenditures (RDE) and patenting using a change in the eligibility criteria for a super deduction in China. In 2006, the Chinese government relaxed the 10 % eligibility criterion, which stated that only firms with a 10 % or higher increase in prior-year RDE can claim an additional 50 % tax deduction. We use an event study approach to show that firms that became newly eligible to claim the super deduction (those just below the criterion) catches up on RDE and product innovation measured by the sales of new products. In the long run, we also observe a closing gap in the number of patents between the two groups of firms. Moreover, extending tax benefits to all firm helps to lower the tax burden, and we find no evidence of manipulation and relabeling. (C) 2020 Published by Elsevier Inc.
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