The Impact of Corporate Taxes on Firm Innovation: Evidence from the Corporate Tax Collection Reform in China

Jing Cai, Yuyu Chen and Xuan Wang

No 25146, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper exploits a tax reform on manufacturing firms in China to study the impact of taxes on firm innovation. The reform switched the corporate income tax collection from the local to the state tax bureau and reduced the effective tax rate by 10%. The reform only applied to firms established after January 2002, allowing us to use regression discontinuity design as the identification strategy. The results show that lower taxes improved both quantity and quality of firm innovation. Moreover, the reform has a bigger impact on firms that are financially constrained and firms that engage more in tax evasion.

JEL-codes: H25 O31 (search for similar items in EconPapers)
Date: 2018-10
New Economics Papers: this item is included in nep-acc, nep-cna, nep-pbe, nep-pub and nep-tra
Note: DEV PE PR
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Citations: View citations in EconPapers (28)

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