IDEAS home Printed from https://ideas.repec.org/a/spr/jknowl/v16y2025i1d10.1007_s13132-024-02091-9.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13132-024-02091-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s13132-024-02091-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Emmanuel Saez & Benjamin Schoefer & David Seim, 2019. "Payroll Taxes, Firm Behavior, and Rent Sharing: Evidence from a Young Workers' Tax Cut in Sweden," American Economic Review, American Economic Association, vol. 109(5), pages 1717-1763, May.
    2. Alvarez-Cuadrado, Francisco & Long, Ngo & Poschke, Markus, 2017. "Capital-labor substitution, structural change and growth," Theoretical Economics, Econometric Society, vol. 12(3), September.
    3. Daniel G. Garrett & Eric Ohrn & Juan Carlos Suárez Serrato, 2020. "Tax Policy and Local Labor Market Behavior," American Economic Review: Insights, American Economic Association, vol. 2(1), pages 83-100, March.
    4. Ashenfelter, Orley C, 1978. "Estimating the Effect of Training Programs on Earnings," The Review of Economics and Statistics, MIT Press, vol. 60(1), pages 47-57, February.
    5. Kramarz, Francis & Philippon, Thomas, 2001. "The impact of differential payroll tax subsidies on minimum wage employment," Journal of Public Economics, Elsevier, vol. 82(1), pages 115-146, October.
    6. Diao, Xinshen & Zhang, Yumei & Chen, Kevin Z., 2012. "The global recession and China's stimulus package: A general equilibrium assessment of country level impacts," China Economic Review, Elsevier, vol. 23(1), pages 1-17.
    7. David H. Autor, 2003. "Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing," Journal of Labor Economics, University of Chicago Press, vol. 21(1), pages 1-42, January.
    8. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
    9. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi, 2022. "Tax enforcement and corporate employment: Evidence from a quasi-natural experiment in China," China Economic Review, Elsevier, vol. 73(C).
    10. Tian, Binbin & Lin, Chao & Zhang, Wenwen & Feng, Chen, 2022. "Tax Incentives, On-the-job Training, and Human Capital Accumulation: Evidence from China," China Economic Review, Elsevier, vol. 75(C).
    11. Lokshin, Boris & Mohnen, Pierre, 2013. "Do R&D tax incentives lead to higher wages for R&D workers? Evidence from The Netherlands," Research Policy, Elsevier, vol. 42(3), pages 823-830.
    12. Young, Andrew T., 2013. "U.S. Elasticities Of Substitution And Factor Augmentation At The Industry Level," Macroeconomic Dynamics, Cambridge University Press, vol. 17(4), pages 861-897, June.
    13. DeAngelo, Harry & DeAngelo, Linda & Stulz, Rene M., 2006. "Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory," Journal of Financial Economics, Elsevier, vol. 81(2), pages 227-254, August.
    14. Cyrus Aghamolla & Nan Li, 2018. "Debt Contract Enforcement and Conservatism: Evidence from a Natural Experiment," Journal of Accounting Research, Wiley Blackwell, vol. 56(5), pages 1383-1416, December.
    15. Zeng, Jing & Dai, Fangjie & Chan, Kam C., 2023. "The impact of an accelerated depreciation tax policy on employment: Evidence from China," Journal of Asian Economics, Elsevier, vol. 86(C).
    16. Mi, Zhou & Wang, Xiaoming, 2000. "Agency cost and the crisis of China's SOE," China Economic Review, Elsevier, vol. 11(3), pages 297-317.
    17. Xingqiang Du & Wei Jian & Shaojuan Lai & Yingjie Du & Hongmei Pei, 2015. "Does Religion Mitigate Earnings Management? Evidence from China," Journal of Business Ethics, Springer, vol. 131(3), pages 699-749, October.
    18. Michael Siemer, 2019. "Employment Effects of Financial Constraints during the Great Recession," The Review of Economics and Statistics, MIT Press, vol. 101(1), pages 16-29, March.
    19. Nuri Ersahin & Rustom M Irani, 2020. "Collateral Shocks and Corporate Employment [House prices, collateral, and self-employment]," Review of Finance, European Finance Association, vol. 24(1), pages 163-187.
    20. Mallick, Debdulal, 2012. "The role of the elasticity of substitution in economic growth: A cross-country investigation," Labour Economics, Elsevier, vol. 19(5), pages 682-694.
    21. Atif Mian & Amir Sufi, 2014. "What Explains the 2007–2009 Drop in Employment?," Econometrica, Econometric Society, vol. 82, pages 2197-2223, November.
    22. Fishelson, Gideon, 1979. "Elasticity of Factor Substitution in Cross-Section Production Functions," The Review of Economics and Statistics, MIT Press, vol. 61(3), pages 432-436, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kemnitz, Alexander & Knoblach, Michael, 2020. "Endogenous sigma-augmenting technological change: An R&D-based approach," CEPIE Working Papers 02/20, Technische Universität Dresden, Center of Public and International Economics (CEPIE).
    2. Glancy, David, 2021. "Housing bust, bank lending & employment: Evidence from multimarket banks," Journal of Banking & Finance, Elsevier, vol. 127(C).
    3. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi, 2022. "Tax enforcement and corporate employment: Evidence from a quasi-natural experiment in China," China Economic Review, Elsevier, vol. 73(C).
    4. Xiao, Renrui & Xu, Pingguo & Huang, Baocong, 2024. "Tax incentives and firm social insurance contributions: Evidence from China," China Economic Review, Elsevier, vol. 86(C).
    5. Michael Knoblach & Fabian Stöckl, 2020. "What Determines The Elasticity Of Substitution Between Capital And Labor? A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 847-875, September.
    6. Tao, Yunqing & Yang, Wei & Ye, Yongwei & Kong, Dongmin, 2024. "The Shock of US-China trade war and the job Market: Downstream shrinkage and upstream employment," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 96(C).
    7. Chen, Xiaoxiong & Mu, Jinghao & Liu, Guanchun & Liu, Yuanyuan, 2024. "Bank liability structure and corporate employment: Evidence from a quasi-natural experiment in China," International Review of Financial Analysis, Elsevier, vol. 95(PA).
    8. Xiaohan Liu & Jianmin Liu & Jia Liu & Jinguang Wu & Yu Hao, 2025. "Does a reduction in the pension insurance contribution ratio promote firm productivity? Evidence from a quasinatural experiment in China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 665-688, January.
    9. Chen, Xiaoxiong & He, Feng & Liu, Guanchun & Ye, Yongwei, 2022. "The effect of downstream expansion on upstream employment: Quasi-natural experimental evidence from China’s Accelerated Depreciation Policy," Research in International Business and Finance, Elsevier, vol. 63(C).
    10. Zeng, Jing & Dai, Fangjie & Chan, Kam C., 2023. "The impact of an accelerated depreciation tax policy on employment: Evidence from China," Journal of Asian Economics, Elsevier, vol. 86(C).
    11. Jiaxuan Li & Liming Ge & Lin Zeng, 2024. "Tax incentive and corporate hiring decisions: Evidence from China's VAT credit refund policy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(1), pages 414-427, January.
    12. Samuele Ialenti & Guido Pialli, 2024. "The increase in the elasticity of substitution between capital and labour: a repeated cross-country investigation," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 33(3), pages 380-400, April.
    13. Matthew Rognlie & Andrei Shleifer & Alp Simsek, 2018. "Investment Hangover and the Great Recession," American Economic Journal: Macroeconomics, American Economic Association, vol. 10(2), pages 113-153, April.
    14. Kim, Jinyoung & Kim, Seonghoon & Koh, Kanghyock, 2022. "Labor market institutions and the incidence of payroll taxation," Journal of Public Economics, Elsevier, vol. 209(C).
    15. Laeven, Luc & McAdam, Peter & Popov, Alexander, 2023. "Credit shocks, employment protection, and growth:firm-level evidence from spain," Journal of Banking & Finance, Elsevier, vol. 152(C).
    16. Antoine Bozio, 2024. "The unusual French policy mix towards labour market inequalities," Fiscal Studies, John Wiley & Sons, vol. 45(1), pages 43-54, March.
    17. Liao, Tianlong & Liu, Guanchun & Liu, Yuanyuan & Lu, Rui, 2023. "Environmental regulation and corporate employment revisited: New quasi-natural experimental evidence from China's new environmental protection law," Energy Economics, Elsevier, vol. 124(C).
    18. Sun, Liang, 2023. "Internal alliance and firm risk," Global Finance Journal, Elsevier, vol. 57(C).
    19. Cumming, Douglas J. & Javakhadze, David & Rajkovic, Tijana, 2024. "Unlocking Dividends: The impact of managerial social capital on international corporate payouts," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 95(C).

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:jknowl:v:16:y:2025:i:1:d:10.1007_s13132-024-02091-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.