Corporate tax policy and heterogeneous firm innovation: Evidence from a developing country |
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Authors: | Yuchen Shao Chengrui Xiao |
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Institution: | 1. School of Economics, Nanjing University, Jiangsu, China;2. School of Public Finance and Taxation, Southwestern University of Finance and Economics, Sichuan, China |
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Abstract: | This paper adds to the literature by identifying the causality of corporate tax policy on firm innovation in a developing country. We exploit the China’s 2006 corporate income tax base reform to integrate the tax system between foreign-invested and state/collective-controlled firms as a natural experiment. The difference-in-differences strategy documents a positive effect of corporate tax deduction on firm patenting. The effect is particularly significant if a firm is of larger size or locates in eastern provinces. We also examine possible channels behind the findings, including changes in R&D and capital investment, intangible assets, financial constraints, and new product sales. |
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Keywords: | Corresponding author Corporate income taxes Innovation Difference-in-differences H32 O31 |
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