Direct Tax Burden, Financing Constraints, and Innovation-Based Output

Yu Lu (), Yaqi Zhao, Yuhan Li and Yuhe Cao
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Yu Lu: Business School, Beijing Technology and Business University, Beijing 102401, China
Yaqi Zhao: Business School, Beijing Technology and Business University, Beijing 102401, China
Yuhan Li: Business School, Beijing Technology and Business University, Beijing 102401, China
Yuhe Cao: Business School, Beijing Technology and Business University, Beijing 102401, China

Sustainability, 2023, vol. 15, issue 21, 1-21

Abstract: Tax and fee reductions serve as pivotal instruments in the deepening of structural reforms on the supply side and constitute a significant element of China’s proactive fiscal policy. Although China’s tax regime encompasses both direct and indirect tax burdens, the direct tax burden directly impacts the operational costs of firms and remains non-transferable. As such, it holds significant influence over corporate growth trajectories. A decrease in the direct tax burden alleviates financing constraints for firms, subsequently reducing their exposure to business risks. Focusing on the innovative output capabilities of firms, this study analyzes A-share-listed companies on the Shanghai and Shenzhen stock exchanges from 2010 to 2021. It aims to ascertain the influence of direct tax burden reductions on innovation output within the tax and fee reduction framework. The findings indicate that lessening the direct tax burden ameliorates financing constraints, thereby enhancing a firm’s innovative output capabilities. A deeper analysis reveals that non-state-owned enterprises benefit more significantly from this dynamic than their state-owned counterparts, underscoring the potential for targeted tax and fee reduction policies to bolster enterprise innovation. Furthermore, the government should recognize enterprise differentiation and drive broader economic growth through tailored strategies. Notably, the positive impact of mitigating financing constraints on innovation is more pronounced in firms with suboptimal corporate governance structures. While this mechanism notably influences non-invention patent applications, its effect on invention patent applications is comparatively muted. Post-outbreak, the interplay between tax burdens and innovative outputs has intensified, becoming more pronounced than in pre-outbreak times.

Keywords: tax and fee reduction; direct tax burden; enterprise innovation output; financing constraints (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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