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How do Tax Incentives Affect Investment and Productivity? Firm-Level Evidence from China

Yongzheng Liu () and Jie Mao ()
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Jie Mao: Department of Public Finance and Taxation, School of International Trade and Economics, University of International Business and Economics

International Center for Public Policy Working Paper Series, at AYSPS, GSU from International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University

Abstract: China initiated a critical value-added tax reform in 2004. Completed in 2009, it introduced permanent tax credit for firms' investment infixed assets. We use a quasi-experimental design and a unique firm-level dataset covering all sizes of firms across a broad range of sectors and regions between 2005 and 2012, to test whether the reform promoted firms' investment and productivity. We estimate that, on average, the reform raised investment and productivity of the treated firms relative to the control firms by 8.8 percent and 3.7 percent, respectively. We also show that the positive effects tend to be strengthened for firms with financial constraints.

New Economics Papers: this item is included in nep-bec, nep-cna, nep-eff, nep-sbm, nep-tid and nep-tra
Date: 2017-08
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Persistent link: https://EconPapers.repec.org/RePEc:ays:ispwps:paper1716

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