The Impact of China’s 2008 R&D Tax Credit on R&D Expenditure – Evidence from National Statistics Data

Abstract

This paper evaluates the research and development (R&D) stimulating effect of China’s R&D tax credit policies enforced around 2008. I also compare this effect to the effect of Chinese governmental direct R&D subsidies for enterprises. By using China National Bureau of Statistics’ data on R&D tax subsidies and expenditure, this paper avoids potentially false assumptions about policy implementation. Next this paper separately examines samples of Chinese state-owned enterprises (SOE), privately-owned enterprises (POE), and foreign invested enterprises (FIE). In sum, R&D tax credit does better than direct R&D subsidies in R&D stimulating effects; POE and especially FIE respond more positively to R&D tax credit. This paper not only increases our understanding of the institutional detail of China’s R&D policy, but also adds to a stream of literature that examine the effectiveness of governmental R&D subsidies.