NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Zhikuo Liu

School of Public Economics and Administration
Shanghai University of Finance and Economics
207 Fenghuang Bldg
777 Guoding Rd, Shanghai
China

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org
Institutional Affiliation: Shanghai University of Finance and Economics

NBER Working Papers and Publications

June 2018Notching R&D Investment with Corporate Income Tax Cuts in China
with Zhao Chen, Juan Carlos Suárez Serrato, Daniel Yi Xu: w24749
We analyze the effects of a Chinese policy that awards substantial corporate tax cuts to firms that increase R&D investment over a given threshold, or notch. We exploit this quasi-experimental variation with administrative tax data in order to shed light on longstanding questions on the effects of fiscal incentives for R&D. We find large responses of reported R&D using a cross-sectional “bunching” estimator that is new to the R&D literature. We also find significant increases in firm-level productivity, even though about 30% of the increase in R&D is due to relabeling of administrative expenses. Anchored by these reduced-form effects, we estimate a structural model of R&D investment and relabeling that recovers a 9.8% return to R&D. We simulate alternative policies and show that firm selec...
 
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