Tax Incentives and Firms’ Decision on Innovation and Export: Case from Chinese Listed Advanced Manufacturers

This study applies the bivariate probit model to a panel of Chinese listed advanced manufacturers to investigate the relationship between tax incentives and firms’ decision on export and R&D. Estimations show that VAT refund and income tax deduction are positively related to firms’ decision on exporting and starting R&D, respectively. Regarding firms’ export decisions, VAT refund is associated much greatly with R&D firms’ decisions on becoming exporters than non-R&D firms’ decisions on becoming exporters. However, the relationship between tax deduction and firms’ R&D decisions depends on firm size. For large firms, tax deduction is associated relatively greatly with exporters in starting R&D activity than with domestic firms in starting R&D activity, whereas, for small firms, tax deduction is associated much more greatly with domestic firms in starting R&D activity than with exporters in starting R&D activity. The study suggests that the relationship between tax incentives and firms’ decisions on becoming exporters and R&D firms varies depending on firms’ status and size.