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Water resources tax and corporate R&D strategies: Policy effects on innovation investment and collaboration preference

Author

Listed:
  • Liu, Duan
  • Peng, Liyun
  • Wang, Qiuhong
  • Wan, Hong
  • Yu, Nizhou

Abstract

This study leverages China's Water Resource Tax (WRT) reform as a quasi-natural experiment to empirically examine its impact on corporate R&D investment and mode choice. Using a multi-period difference-in-difference (DID) model, we find that the institutional pressure and support resulting from the WRT reform significantly boost R&D investment in water-sensitive enterprises. Notably, these firms prefer for cooperative R&D over independent R&D, particularly in subsamples characterized by higher R&D risk, lower R&D capacity, and greater prior experience with collaboration. We also explore the heterogeneity of the reform's effect in terms of corporate characteristics and external environmental factors. Our findings contribute to the literature on the economic outcomes of environmental taxation policies, offering strategic insights for firms’ R&D decisions and providing guidance for optimizing green tax systems to support sustainable development.

Suggested Citation

  • Liu, Duan & Peng, Liyun & Wang, Qiuhong & Wan, Hong & Yu, Nizhou, 2025. "Water resources tax and corporate R&D strategies: Policy effects on innovation investment and collaboration preference," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 2276-2298.
    • Handle: RePEc:eee:ecanpo:v:85:y:2025:i:c:p:2276-2298
    DOI: 10.1016/j.eap.2025.03.009
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