Tax incentives and R&D activity: Firm-level evidence from Taiwan

Chih-Hai Yang, Chia-Hui Huang and Tony Chieh-Tse Hou ()

Research Policy, 2012, vol. 41, issue 9, 1578-1588

Abstract: This paper investigates the effect of tax incentives on R&D activities in Taiwanese manufacturing firms. The propensity score matching (PSM) estimates show that recipients of R&D tax credits appear on average to have 53.80% higher R&D expenditures than that they do without receiving tax credits, while there is no significantly higher growth rate of R&D expenditure. This study further employs the panel instrumental variable (IV) and generalized method of moment (GMM) techniques to control for endogeneity of R&D tax credits and firm heterogeneity in determining R&D expenditure. The R&D tax credit is witnessed to exhibit a significantly positive influence on R&D expenditure and its growth, especially for electronics firms. The marginal effect is moderate, ranging from 0.094 to 0.120. Specifically, the R&D elasticity concerning tax credits tends to increase gradually along with the approaching expiration of R&D tax credits measure, lending a supportive view on its efficacy.

Keywords: R&D; Tax; Propensity score matching (search for similar items in EconPapers)
JEL-codes: H25 H32 K34 O32 O38 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:respol:v:41:y:2012:i:9:p:1578-1588

DOI: 10.1016/j.respol.2012.04.006

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