The Importance of Tax Policies on Innovation - A Reassessment Using Chinese National Statistics Data

Abstract

This study evaluates the effects of Chinese research and development (R&D) tax credit policies enforced around 2008 on corporate profit and patent activity. Compared with governmental direct tax subsidies, R&D tax credit more positively relates to corporate patent activity and profit. This paper separately examines samples of Chinese state-owned enterprises (SOE), privately-owned enterprises (POE), and foreign invested enterprises (FIE), and find that stimulating effect is the strongest for POEs. This study not only increases our understanding of China’s R&D policy, but also adds to the R&D tax credit literature and a stream of R&D effectiveness literature.