Corporate tax policy and heterogeneous firm innovation: Evidence from a developing country

Yuchen Shao () and Chengrui Xiao

Journal of Comparative Economics, 2019, vol. 47, issue 2, 470-486

Abstract: This paper adds to the literature by identifying the causality of corporate tax policy on firm innovation in a developing country. We exploit the China’s 2006 corporate income tax base reform to integrate the tax system between foreign-invested and state/collective-controlled firms as a natural experiment. The difference-in-differences strategy documents a positive effect of corporate tax deduction on firm patenting. The effect is particularly significant if a firm is of larger size or locates in eastern provinces. We also examine possible channels behind the findings, including changes in R&D and capital investment, intangible assets, financial constraints, and new product sales.

Keywords: Corporate income taxes; Innovation; Difference-in-differences (search for similar items in EconPapers)
JEL-codes: H32 O31 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:47:y:2019:i:2:p:470-486

DOI: 10.1016/j.jce.2019.02.005

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