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The Impact of R&D Tax Incentives on Employment: Evidence from Chinese Manufacturing Firms

Author

Listed:
  • Yang Hu

    (Peking University)

  • Wei Cui

    (Peking University)

  • Xiuting Piao

    (Peking University)

  • Yingying Ye

    (Zhejiang University of Finance and Economics)

  • Yuxiang Cheng

    (Peking University)

  • Song Zeng

    (Peking University)

Abstract

Using a sample of 12,690 observations from manufacturing firms listed in China between 2011 and 2018 and adopting a difference-in-difference approach, we examine the effect of Additional Deduction Policy for R&D Expenses (ADPRD) on employment. Our findings reveal that the ADPRD significantly increases corporate employment; furthermore, we identify three underlying mechanisms: the substitution effect, output effect and liquidity effect. Interestingly, the combined influence of the output and liquidity effects outweighs the substitution effect, resulting in a positive net effect. Additional analysis indicates that the impact of ADPRD on employment is more pronounced for non-state-owned firms, those with lower substitution elasticity, and those with lower dividend payout ratio. Overall, our study provides empirical evidence on the relationship between the ADPRD and corporate employment and offers valuable insights for governments seeking to align innovation and employment policies.

Suggested Citation

  • Yang Hu & Wei Cui & Xiuting Piao & Yingying Ye & Yuxiang Cheng & Song Zeng, 2025. "The Impact of R&D Tax Incentives on Employment: Evidence from Chinese Manufacturing Firms," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(1), pages 2310-2340, March.
    • Handle: RePEc:spr:jknowl:v:16:y:2025:i:1:d:10.1007_s13132-024-02091-9
    DOI: 10.1007/s13132-024-02091-9
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    More about this item

    Keywords

    Additional Deduction Policy for R&D Expenses; Employment; Substitution Effect; Output Effect; Liquidity Effect;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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