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How Do Tax Incentives Affect Investment and Productivity? Firm-Level Evidence from China†

How Do Tax Incentives Affect Investment and Productivity? Firm-Level Evidence from China† AbstractChina initiated a major reform for capital taxation in 2004. Completed in 2009, it introduced permanent tax incentives for firms’ investment in fixed assets. We explore a unique firm-level dataset from years 2005–2012 and utilize a quasi-experimental design to test the impacts of the reform on firms’ investment and productivity. We find that, on average, the reform raised investment and productivity of the treated firms relative to the control firms by 38.4 percent and 8.9 percent, respectively. We also show that the positive effects tend to be strengthened for firms with financial constraints. (JEL D24, D25, G31, H25, O25, P31, P35) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Economic Policy American Economic Association

How Do Tax Incentives Affect Investment and Productivity? Firm-Level Evidence from China†

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Publisher
American Economic Association
Copyright
Copyright © 2019 © American Economic Association
ISSN
1945-7731
DOI
10.1257/pol.20170478
Publisher site
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Abstract

AbstractChina initiated a major reform for capital taxation in 2004. Completed in 2009, it introduced permanent tax incentives for firms’ investment in fixed assets. We explore a unique firm-level dataset from years 2005–2012 and utilize a quasi-experimental design to test the impacts of the reform on firms’ investment and productivity. We find that, on average, the reform raised investment and productivity of the treated firms relative to the control firms by 38.4 percent and 8.9 percent, respectively. We also show that the positive effects tend to be strengthened for firms with financial constraints. (JEL D24, D25, G31, H25, O25, P31, P35)

Journal

American Economic Journal: Economic Policy – American Economic Association

Published: Aug 1, 2019

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