Abstract We employ China's 2018 value‐added tax credit refund reform as a quasi‐natural experiment to investigate the policy's impact on firms' outward foreign direct investment (FDI). We find that the policy significantly promotes firms' outward FDI through improved liquidity, increased risk‐taking capacity, and heightened innovation incentives. The effect is stronger for non‐state‐owned enterprises, high‐tax‐burden firms, credit‐accumulating firms, and those with limited tax‐shifting capacity. The policy also expands outward FDI diversification across countries and industries. Additionally, we evaluate the policy's effects from a supply chain perspective, revealing that affected supplier firms can substantially enhance their customer firms' outward FDI through supply chain transmission mechanisms.
Mao et al. (Wed,) studied this question.