Tax Incentives and R&D Activity: Firm-Level Evidence from Taiwan

Posted: 6 Jan 2013

See all articles by Chih‐Hai Yang

Chih‐Hai Yang

National Central University - Department of Economics

Chia-Hui Huang

Aletheia University

Tony Chieh-tse Hou

National Dong Hwa University

Date Written: May 15, 2012

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.

Keywords: R&D, tax, propensity score matching

JEL Classification: H25, H32, K34, O32, O38

Suggested Citation

Yang, Chih-Hai and Huang, Chia-Hui and Hou, Tony Chieh-tse, Tax Incentives and R&D Activity: Firm-Level Evidence from Taiwan (May 15, 2012). Research Policy, Vol. 41 (9), 1578–1588, 2012, Available at SSRN: https://ssrn.com/abstract=2196950

Chih-Hai Yang

National Central University - Department of Economics ( email )

NO.300 Jung-da Rd.
Jung-li City
Taoyuan, 320,R.O.C
Taiwan

Chia-Hui Huang (Contact Author)

Aletheia University ( email )

No.32, Zhenli St.,
Danshui Dist.
New Taipei City, 25103
Taiwan

HOME PAGE: http://chhuang.epage.au.edu.tw/bin/home.php

Tony Chieh-tse Hou

National Dong Hwa University ( email )

No. 1, Sec. 2, Da Hsueh Rd.
Shoufeng
Hualien, 97401
Taiwan

HOME PAGE: http://faculty.ndhu.edu.tw/~tonycthou/

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