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Tax incentives and R&D activity: Firm-level evidence from Taiwan

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  • Yang, Chih-Hai
  • Huang, Chia-Hui
  • Hou, Tony Chieh-Tse

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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Bibliographic Info

Article provided by Elsevier in its journal Research Policy.

Volume (Year): 41 (2012)
Issue (Month): 9 ()
Pages: 1578-1588

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Handle: RePEc:eee:respol:v:41:y:2012:i:9:p:1578-1588

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Web page: http://www.elsevier.com/locate/respol

Related research

Keywords: R&D; Tax; Propensity score matching;

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References

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  1. Hall, Bronwyn & Van Reenen, John, 2000. "How effective are fiscal incentives for R&D? A review of the evidence," Research Policy, Elsevier, vol. 29(4-5), pages 449-469, April.
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Cited by:
  1. Yang, Chih-Hai & Tseng, Yu-Hsuan & Chen, Chiang-Ping, 2012. "Environmental regulations, induced R&D, and productivity: Evidence from Taiwan's manufacturing industries," Resource and Energy Economics, Elsevier, vol. 34(4), pages 514-532.
  2. Castellacci, Fulvio & Lie, Christine, 2013. "Do the effects of R&D tax credits vary across industries? A meta-regression analysis," MPRA Paper 47937, University Library of Munich, Germany.

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