Can the VAT Credit Refund Promote Corporate Innovation? Evidence from the National Tax Survey Data of China

Abstract This study uses the value-added tax deduction and refund policy implemented in China in 2019 as a quasi-natural experiment, establishes a double-difference model, and empirically examines the impact of value-added tax deduction and refund policy on enterprise innovation. The benchmark regression shows that, on average, the value-added tax retention and refund policy increased the innovation capability of enterprises by approximately 20%. In terms of the mechanism of action, the research results indicate that value-added tax retention and refund policies promote enterprise innovation by enhancing the risk-taking ability of enterprises and reducing their awareness of economic policy uncertainty. Heterogeneity analysis found that the innovative incentive effect of value-added tax retention and refund policies is more evident in high-tech, manufacturing, private, and large- and medium-sized enterprises. This study provides policy recommendations to improve the pertinence and tax neutrality of value-added tax deduction and refund policies, construct a normalized mechanism for value-added tax deduction and refund policies, and improve the collaborative tax credit mechanism for enterprise financing and credit enhancement.