Notching R&D Investment with Corporate Income Tax Cuts in China
By Zhao Chen, Zhikuo Liu, Juan Carlos Suárez Serrato, D. Xu. The American Economic Review, 2018
374 citations recorded by the source corpus.
We study a Chinese policy that awards substantial tax cuts to firms with R&D investment over a threshold or “notch.” Quasi-experimental variation and administrative tax data show a significant increase in reported R&D that is partly driven by firms relabeling expenses as R&D. Structural estimates show relabeling accounts for 24.2 percent of reported R&D and that doubling R&D would increase productivity by 9 percent. Policy simulations show that firm selection and relabeling determine the cost-effectiveness of stimulating R&D, that notch-based policies are more effective than tax credits when relabeling is prevalent, and that modest spillovers justify the program from a welfare perspective. (JEL D22, D24, H25, O14, O32, P31, P35)
Subfields: Accounting, Economics and Econometrics
View Paper: https://www.semanticscholar.org/paper/5909731775723df4ac44685ba039b81f3d56d3e5
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Citations in the corpus
- Do tax incentives for research increase firm innovation? An RD design for R&D (2016, neutral): “Chen et al. (2017) is perhaps the closest paper to ours.”
- A toolkit of policies to promote innovation (2019, background): “Chen et al. (2019), for example, found substantial relabeling”
- Economic policy uncertainty (EPU) and firm carbon emissions: Evidence using a China provincial EPU index (2020, neutral): “(Chen et al., 2018).”