Tax incentives and R&D activity: Firm-level evidence from Taiwan |
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Authors: | Chih-Hai Yang Tony Chieh-Tse Hou |
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Affiliation: | a National Central University, Jhongli City, Taiwan, ROC b Department of Economics, Aletheia University, 32 Zhenli Street, Danshui Dist., New Taipei City 251, Taiwan, ROC c National Dong Hwa University, Shoufeng, Taiwan, ROC |
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Abstract: | This paper investigates the effect of tax incentives on R&D activities in Taiwanese manufacturing firms. The propensity score matching (PSM) estimates show that recipients of R&D tax credits appear on average to have 53.80% higher R&D expenditures than that they do without receiving tax credits, while there is no significantly higher growth rate of R&D expenditure. This study further employs the panel instrumental variable (IV) and generalized method of moment (GMM) techniques to control for endogeneity of R&D tax credits and firm heterogeneity in determining R&D expenditure. The R&D tax credit is witnessed to exhibit a significantly positive influence on R&D expenditure and its growth, especially for electronics firms. The marginal effect is moderate, ranging from 0.094 to 0.120. Specifically, the R&D elasticity concerning tax credits tends to increase gradually along with the approaching expiration of R&D tax credits measure, lending a supportive view on its efficacy. |
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Keywords: | H25 H32 K34 O32 O38 |
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