Does tax reduction spur innovation? Firm-level evidence from China

Wenping Zheng and Jie Zhang

Finance Research Letters, 2021, vol. 39, issue C

Abstract: The role of taxation in firms’ innovation is far from a clear answer. We estimate the effect of tax reduction on firms’ innovation. By using a novel matched dataset with rich information on innovative activities and taxation reduction, we find the significant promotion effect of tax reduction In addition, by taking heterogeneity into account, we find the promotion effect is larger in service industry than manufacturing sector. Furthermore, we employ alternative innovation indicators and estimation models to take robust checks. The policy implication is that more tax reduction policies should be introduced to small and medium- size firms.

Keywords: Tax reduction; Innovation; Endogeneity (search for similar items in EconPapers)
JEL-codes: H25 O31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:39:y:2021:i:c:s1544612319313315

DOI: 10.1016/j.frl.2020.101575

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