 Innovation incentives and corporate tax avoidance: Evidence from ChinaJunyi Xiang, Qi Shao and Yong Fan Economic Analysis and Policy, 2025, vol. 85, issue C, 1216-1237 Abstract: This paper examines the impact of an innovation incentive policy on corporate tax avoidance, utilizing China's R&D expenditure super deduction policy reform in 2016 as a natural experiment. Our findings reveal that the implementation of the super deduction policy significantly amplifies the book-tax gap of enterprises, indicative of an increased degree of tax avoidance. We also find that when enterprises are treated by innovation incentive policies, they will increase investment, and the magnitude of investment expenditure surpasses the preferential treatment enjoyed by enterprises, thereby impeding their cash flow. In circumstances where external financing is not easily alterable, tax avoidance becomes an internal financing option for enterprises. Further, we find that both widening policy coverage and enhancing policy benefits increase tax avoidance among firms, with enhancing benefits having a greater impact. In addition, this impact is more pronounced in firms with low cash holdings, small scale, non-state ownership, or high financial constraints. Keywords: Innovation incentives policy; Tax avoidance; R&D expenditure super deduction; Capital investment (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:85:y:2025:i:c:p:1216-1237 DOI: 10.1016/j.eap.2025.01.019 Access Statistics for this article Economic Analysis and Policy is currently edited by Clevo Wilson More articles in Economic Analysis and Policy from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.