Investor tax breaks and financing for start-ups: evidence from China

Güçeri, Irem, Xipei Hou and Jing Xing

No 19199, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We examine how investor-level tax incentives affect financing for start-ups using the introduction of a generous tax deduction for qualified angel and VC investment in China as a quasi-natural experiment. We find that the tax incentive increases funding for eligible start-ups, with stronger responses from larger and more experienced investors. The tax incentive leads to substitution between eligible and non-eligible investments. There is no evidence that the tax incentive lowers investment quality. We further show that the investor-level tax incentive encourages firm entry into affected industries, especially in cities more exposed to venture capital funds.

Keywords: Venture capital; Tax incentives (search for similar items in EconPapers)
JEL-codes: G24 G32 H25 L26 (search for similar items in EconPapers)
Date: 2024-07
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