The Impact of Tax Incentives on the Financial Performance of Wind Power Generation in China: Short-Term and Long-Term Effects

Wang Ying and Yulia V. Leontyeva

Journal of Tax Reform, 2024, vol. 10, issue 3, 459-474

Abstract: This study investigates the impact of tax incentives on the financial performance of wind power companies in China, particularly in the context of the global shift towards renewable energy. Wind power has become a key component of China’s clean energy strategy, especially since the “Eleventh Five-Year Plan”, which has fostered industry growth through financial subsidies and tax policies. Despite these efforts, issues such as subsidy misuse have prompted reforms, linking financial support to performance. Using data from 76 listed Chinese wind power companies between 2013 and 2023, this research employs a multiple linear regression model to evaluate the short- and long-term effects of corporate income tax and value-added tax (VAT) incentives on financial performance. Results show that tax incentives significantly enhance long-term financial performance, as indicated by Tobin’s Q, but their impact on short-term measures like return on assets (ROA) is more limited. Firms appear to utilize these incentives primarily for innovation and expansion, contributing to sustained growth rather than immediate gains. The findings suggest that while tax incentives are essential for fostering long-term growth in capital-intensive industries like wind power, they do not significantly enhance short-term financial health. Therefore, policymakers should consider complementing tax incentives with additional mechanisms, such as direct subsidies or low-interest loans, to improve short-term financial stability and operational support. The work substantiates that tax incentives are effective in promoting long-term financial performance but have limited short-term benefits. Future policy frameworks should adopt a more integrated approach, using a combination of tools to support both immediate financial stability and sustainable long-term growth.

Keywords: wind power industry; Financial Subsidies; Tax Incentives; Corporate income tax; Value-added tax (search for similar items in EconPapers)
JEL-codes: C51 H23 Q56 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:aiy:jnljtr:v:10:y:2024:i:3:p:459-474

DOI: 10.15826/jtr.2024.10.3.178

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