Description:
This study uses a new method to accurately identify whether a super-deduction policy supports a firm in its research and development (R&D) expenses. It adopts the difference-in-differences method to investigate the effect of expanding the range of expenses deducted in 2013 and the expansion of the policy objectives in 2016 of China's super-deduction policy to encourage firms to increase their R&D investment . The results show that the 2013 policy changes significantly increased the R&D investment of firms engaged in key state-supported technologies. The elasticity of R&D expenditure to tax incentives was 1.58 while the elasticity values for manufacturing, construction, small and medium-sized, and non-state-owned enterprises were 1.69, 8.95, 1.71, and 1.58, respectively. Policy changes in 2016 significantly increased the R&D investment of firms engaged in general technologies, with an elasticity of 2.05. The mechanism analysis shows that the policy significantly reduces the cost of R&D investment and increases cash flows, both of which can boost a firm’s R&D investment