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Rains after the drought: the impact of VAT credit refund on corporate R&D expenditures in China

Author

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  • Xiaoliang Yang
  • Xue Dong
  • Yaqin Zeng

Abstract

This study investigates the impact of a major tax policy reform – the Value Added Tax (VAT) credit refund policy – on corporate R&D expenditures in China. We employ a difference-in-differences approach to analyse the causal effect of the policy and examine potential heterogeneities based on firm features. Our findings reveal a significant and positive effect of the VAT credit refund policy on corporate R&D expenditures, particularly for firms with private ownership, small size, and non-high-tech classification. Additionally, mediation analysis indicates that the policy alleviates financial constraints, facilitating increased R&D investment, while moderation analysis shows a more pronounced impact on firms with lower initial liquidity. These results underscore the significance of addressing internal financial constraints and firm characteristics in designing tax policies to stimulate corporate R&D investment.

Suggested Citation

  • Xiaoliang Yang & Xue Dong & Yaqin Zeng, 2025. "Rains after the drought: the impact of VAT credit refund on corporate R&D expenditures in China," Applied Economics, Taylor & Francis Journals, vol. 57(43), pages 6804-6819, September.
    • Handle: RePEc:taf:applec:v:57:y:2025:i:43:p:6804-6819
    DOI: 10.1080/00036846.2024.2386857
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