Rains after the drought: the impact of VAT credit refund on corporate R&D expenditures in China

Xiaoliang Yang, Xue Dong and Yaqin Zeng

Applied Economics, 2025, vol. 57, issue 43, 6804-6819

Abstract: This study investigates the impact of a major tax policy reform – the Value Added Tax (VAT) credit refund policy – on corporate R&D expenditures in China. We employ a difference-in-differences approach to analyse the causal effect of the policy and examine potential heterogeneities based on firm features. Our findings reveal a significant and positive effect of the VAT credit refund policy on corporate R&D expenditures, particularly for firms with private ownership, small size, and non-high-tech classification. Additionally, mediation analysis indicates that the policy alleviates financial constraints, facilitating increased R&D investment, while moderation analysis shows a more pronounced impact on firms with lower initial liquidity. These results underscore the significance of addressing internal financial constraints and firm characteristics in designing tax policies to stimulate corporate R&D investment.

Date: 2025
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DOI: 10.1080/00036846.2024.2386857

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