How Do Tax Incentives Affect Investment and Productivity? Firm-Level Evidence from China

Yongzheng Liu and Jie Mao

American Economic Journal: Economic Policy, 2019, vol. 11, issue 3, 261-91

Abstract: China initiated a major reform for capital taxation in 2004. Completed in 2009, it introduced permanent tax incentives for firms' investment in fixed assets. We explore a unique firm-level dataset from years 2005–2012 and utilize a quasi-experimental design to test the impacts of the reform on firms' investment and productivity. We find that, on average, the reform raised investment and productivity of the treated firms relative to the control firms by 38.4 percent and 8.9 percent, respectively. We also show that the positive effects tend to be strengthened for firms with financial constraints.

JEL-codes: D24 D25 G31 H25 O25 P31 P35 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/pol.20170478
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Citations: View citations in EconPapers (134)

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Working Paper: How do Tax Incentives Affect Investment and Productivity? Firm-Level Evidence from China (2017)
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