A comparative study on impact of tax incentives and financial subsidies on R&D investment of Chinese materia medica enterprises / 中草药

ABSTRACT

By comparing the incentive effect of indirect tax incentives and direct financial subsidies on R&D investment of Chinese medicine enterprises, this empirical study aims to provide empirical evidence for the government subsidies to encourage the R&D investment of traditional Chinese medicine industry, and also provide valuable reference for the government to encourage enterprises to carry out innovation activities. Using a total of 301 observations in 62 traditional Chinese medicine enterprises from 2012 to 2016 as the research object, the paper analyzed the impact of tax incentives and financial subsidies on enterprise innovation performance. The results show that tax incentives have a significant incentive effect on R&D investment of traditional Chinese medicine enterprises, for every 1% reduction in tax costs, R&D investment increase by 0.99%, and R&D investment tax elasticity is -0.99; Financial subsidies have a significant positive effect on R&D investment but the estimated coefficient is only 0.24. When tax incentives and financial subsidies exist at the same time, the effect of financial subsidies on R&D investment is not significant. Moreover, the regression results of adding firm size as a moderator variable showed that incentive effects of tax incentives on R&D investment decreased with the increased size of the enterprise. Therefore, government subsidies should be based on tax incentives, supplemented by financial subsidies, and tax incentives should be properly inclined to SMEs.