The Effects Of Tax Incentives On Firms’ R&D Activities

Domestic and international researches show that enterprise technology innovation, especially research and development (R&D) has become an important factor affecting a country’s economic development. In the trend of global economic integration, the access of foreign multinational companies makes our country’enterprise technological innovation face severe challenges. The inherent externalities、uncertainty and high risk of R&D activities make the enterprises in the choice of whether to invest in R&D are more cautious, and relying solely on corporate investment will lead to market failures. To solve this problem, many countries have introduced a variety of tax incentives to promote technological innovation activities. In recent years, China has also formulated a series of tax incentives to promote companies to increase R&D investment, implementation effect of these policies become the focus of attention of scholars. Under this history background, studying the effects of tax incentives on firms’R&D activities, can impact the formulation and evaluation of the tax policy as a reference, to correctly set up R&D tax incentives and improve the incentive effect of tax policy, has important theory value and practical significance.Firstly, this paper reviews the existing domestic and foreign research, thus conclude the necessity of the study; Secondly, we theoretically analyses the present situation of our country’ enterprise R&D input and tax incentives related to R&D so that lay a theoretical foundation. Finally, we utilize a panel dataset of the electronic company and biopharmaceutical company under the manufacturing industry in our country over the 2009-2012 period, and further separate the full sample into two subgroups:the electronics industry, representing high-tech industry, and non-electronics firms. The article adopts the propensity score matching (PSM) to control the endogenous problem, analyzing the potential effect of tax incentives on R&D activities of firms. The results show that tax incentives have a significant positive effect on R&D expenditure and R&D expenditure growth rate. The recipients of R&D tax incentives appear on average to have 54.4% higher R&D expenditure and 46.5% higher R&D expenditure growth rate than that they do without receiving tax credits. For electronic company, the difference of the R&D expenditure growth rate reached 31.3%, while the non-electronics company is only 2.6%, show that though R&D tax incentives promote the R&D activities of non-electronics firms, the incentive effect is not obvious. The results show the effectiveness of the preferential tax policies in our country. The results of this paper on the one hand supplement the deficiency of the existing literature, on the other hand provide a theoretical basis for our country to develop R&D tax incentives.