Cash on the table? Imperfect take-up of tax incentives and firm investment behavior

Wei Cui, Jeffrey Hicks and Jing Xing

Journal of Public Economics, 2022, vol. 208, issue C

Abstract: We investigate whether investment incentives work in less developed countries by exploiting the introduction of accelerated depreciation (AD) for fixed asset investment in China as a natural experiment. In contrast to the large positive impact of similar tax incentives in the U.S. and U.K. found in recent studies, we document that AD was ineffective in stimulating Chinese firms’ investment. Further, using confidential corporate tax returns from a large province, we find that firms fail to claim the AD benefit on over 80% of eligible investments. Firms’ take-up is significantly influenced by their taxable positions and tax sophistication. Moreover, resources of local tax authorities help improve awareness of the policy. Our study contributes to the understanding of conditions under which tax incentives for investment can be effective.

Keywords: Tax incentives; Investment; Take-up; Tax administration (search for similar items in EconPapers)
JEL-codes: H2 H3 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Working Paper: Cash on the Table? Imperfect Take-up of Tax Incentives and Firm Investment Behavior (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:208:y:2022:i:c:s0047272722000342

DOI: 10.1016/j.jpubeco.2022.104632

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