ABSTRACT We construct global value chain (GVC) volatility indicators across four dimensions to empirically examine the influence mechanism of tax incentives on GVC volatility. The findings reveal that tax incentives significantly mitigate GVC volatility, and this effect remains robust after conducting robustness tests and addressing endogeneity through an instrumental variable approach. Mechanism tests show that enhancing resource agglomeration and increasing R&D capital investment are the underlying mechanisms through which tax incentives alleviate firms' GVC volatility. Heterogeneity analysis indicates that firms with low operational risk and low global engagement exhibit more pronounced responses to tax incentives. Further analysis demonstrates differential responses to tax incentives across trade type orientations: tax incentives for processing export‐oriented firms exacerbate their GVC volatility, while general import‐oriented firms show a “dual effect.” Related Articles Wang, Y. 2017. “Why Tax Policy Is Not Politics in China: Public Finance and China's Changing State‐Society Relations:” Politics & Policy 45, no. 2: 194–223. https://doi.org/10.1111/polp.12200 . Wise, C., and C. Quiliconi. 2007. “China's Surge in Latin American Markets: Policy Challenges and Responses.” Politics & Policy 35, no. 3: 410–438. http://onlinelibrary.wiley.com/doi/10.1111/j.1747‐1346.2007.00067.x/full . Brockett, C. D., C. D. R. R. Gottfried, and J. P. Evans. 2008. “The Use of State Tax Incentives to Promote Forest Preservation on Private Lands in Tennessee: An Evaluation of Their Equity and Effectiveness Impacts.” Politics & Policy 31, no. 2: 252–281. https://doi.org/10.1111/j.1747‐1346.2003.tb00148.x .
Wu et al. (Sat,) studied this question.