Tax reform, tax shifting and enterprise innovation
Abstract
Fiscal and tax policies, as important forms of government regulation and control of the economy, have a profound impact on both macroeconomics and microeconomics and have been widely studied by scholars. To deeply explore the relationship between tax reform and enterprise innovation, based on classic financial theories such as financing constraints and tax shifting, annual data on Chinese A-share listed companies from 2009 to 2022 and the time-varying difference-in-differences method, we investigated the impact mechanism and economic effects of the “replace the business tax with a value-added tax” policy (VAT reform)on enterprise innovation and examined the moderating effect of the tax shifting ability during this process. The research results indicate the following: VAT reform can lower the tax base of enterprises, reduce cash outflows, and alleviate financing constraints, which helps enterprises stimulate innovation vitality and enhance R&D investments. The negotiation leverage that a company possesses in dealings with its providers and purchasers influences its capacity to transfer fiscal burdens. The enhancement of corporate innovation resulting from the VAT reform is notably pronounced. In contrast to state-owned enterprises, non-state-owned enterprises face fierce market competition and greater survival pressure and do not undertake policy-related activities. They are more sensitive to the tax reduction effect of the VAT reform and are more willing to carry out innovative activities when pursuing long-term development. At the same time, they are also more willing to enhance their tax shifting ability to fully obtain policy dividends for enterprise innovation. This conclusion can help the government correctly judge and comprehensively evaluate the effect of the VAT reform, providing management insights into how the government can better improve tax arrangements and promote enterprise innovation to achieve balanced development and how enterprises can better obtain policy dividends to promote technological innovation.
Keyword : tax reform, VAT, shifting, enterprise innovation, DID
How to Cite
Qi, R.-K., Xiong, Z., & Bilan, Y. (2025). Tax reform, tax shifting and enterprise innovation. Technological and Economic Development of Economy, 31(2), 341–363. https://doi.org/10.3846/tede.2025.22571
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Chen, Z., Jiang, X., Liu, Z., Serrato, J. C. S., & Xu, D. Y. (2023). Tax policy and lumpy investment behaviour: Evidence from China’s VAT reform. The Review of Economic Studies, 90(2), 634–674. https://doi.org/10.1093/restud/rdac027
Chen, Z., & Wang, Y. (2016). Does “VAT reform” promote division of labor: Evidence from Chinese listed companies? Management World, (3), 36–45+59. https://doi.org/10.19744/j.cnki.11-1235/f.2016.03.004
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Geringer, S. (2023). The EU VAT rate reform 2022 from an environmental policy perspective. EC Tax Review, 32(1), 16–25. https://doi.org/10.54648/ECTA2023003
Giedraitis, V. R., Stavytskyy, A., Kharlamova, G., Ulvidienė, E., & Jorgenson, A. (2024). Mitigating the shadow: Exploring taxes assolutions. Journalof International Studies, 17(2), 283–297. https://doi.org/10.14254/2071-8330.2024/17-2/15
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Li, Y. Y., & Yan, C. (2018). Will replacing BT with VAT for the service industry lead the manufacturing industry to upgrade? Economic Research Journal, 53(4), 18–31.
Liu, F., Yang, Z., & Yang, X. (2016). Institutional environment, tax incentives and enterprise innovation investment. Management Review, 28(2), 61–73. https://doi.org/10.14120/j.cnki.cn11-5057/f.2016.02.006
Liu, J., Tang, H., & Wu, J. (2017). The effect of the full implementation of the VAT reform on the profitability, investment and specialised division of labor of enterprises: An analysis based on the PSM-DID model of listed companies in Hunan province. Journal of Public Finance, (12), 75–88. https://doi.org/10.19477/j.cnki.11-1077/f.2017.12.007
Liu, D., Zhou, Q., Chen, S., Wan, H., & He, H. (2021). Capital market access and innovation efficiency: A natural experiment from China’s pilot VAT reform in 2012. International Review of Economics & Finance, 71, 549–566. https://doi.org/10.1016/j.iref.2020.09.026
Lu, J., Liang, M., Dabić, M., & Lin, W. (2024). “Chasinggrade” or “Drivinginnovation”? Social responsibility grades of heavily polluting enterprises and exploratory innovation. IEEE Transactions on Engineering Management, 71, 11166–11182. https://doi.org/10.1109/TEM.2024.3411992
Lyssiotou, P., & Savva, E. (2021). Who pays taxes on basic food stuffs? Evidence from broadening the VAT base. International Tax and Public Finance, 28, 212–247.
Mamboundou, P. N. (2022). Is the value added tax reform a source of food insecurity and food poverty? The Burkina Faso case. Journal of International Development, 34(7), 1334–1346. https://doi.org/10.1002/jid.3637
Mao, J., Cao, J., & Yang, C. (2020). The impact of VAT reform on firms’ innovation behavior: A mechanism analysis and an empirical test. Taxation Research, (7), 12–19. https://doi.org/10.19376/j.cnki.cn11-1011/f.2020.07.002
Mukherjee, A., Singh, M., & Žaldokas, A. (2017). Do corporate taxes hinder innovation? Journal of Financial Economics, 124(1), 195–221. https://doi.org/10.1016/j.jfineco.2017.01.004
Nagato, T. (2024). Designing a tax system that encourages innovation in start-ups. Public Policy Review, 20(1), 1–33. https://doi.org/10.57520/prippr.20-1-1
Ni, H., Gong, L., & Wang, Q. (2016). Price effect and income distribution effect to the reform of replacing business tax for VAT. China Industrial Economics, (12), 23–39. https://doi.org/10.19581/j.cnki.ciejournal.2016.12.003
Novoa-Hoyos, A., Depoo, L., & Jiménez-Rodríguez, E. (2022). Role of financial literacy and awareness of tax impacts in an emerging economy facing tax reform. Economics and Sociology, 15(1), 222–240. https://doi.org/10.14254/2071-789X.2022/15-1/14
Peng, F., Peng, L., & Wang, Z. (2021). How do VAT reforms in the service sectors impact TFP in the manufacturing sector: Firm-level evidence from China. Economic Modelling, 99, Article 105483. https://doi.org/10.1016/j.econmod.2021.03.002
Qi, R. (2022). Top management team characteristics, overconfidence, and financial asset allocation. Amfiteatru Economic, 24(61), 759–781. https://doi.org/10.24818/EA/2022/61/759
Qiao, R., & Chen, L. (2017). The policy effect of tax shifing on the replacement of business tax by VAT – An analysis basing on cash-cash flow sensitivity. China Industrial Economics, (6),117–135. https://doi.org/10.19581/j.cnki.ciejournal.2017.06.021
Qin, J., Yang, K., & Ding, X. (2023). Can the reform of the transfer tax system affect corporate green innovation – Evidence from China’s “BT to VAT” reform. Sustainability, 15(4), Article 2986. https://doi.org/10.3390/su15042986
Sen, A., & Wallace, S. (2022). The revenue productivity of India’s subnational VAT. National Tax Journal, 75(4), 711–729. https://doi.org/10.1086/721687
Shao, Y., Chen, S., & Wang, J. (2019). Research on the impact of “VAT reform” policy on firms’ innovation investment: A difference-in-difference method based on propensity score matching. Science Research Management, 40(6), 77–85. https://doi.org/10.19571/j.cnki.1000-2995.2019.06.008
Sidek, S., & Abdulraqeeb, R. M. A. (2022). The moderating effects of government supports towards VAT compliance among SMES in UAE: A conceptual framework. Mathematical Statistician and Engineering Applications, 71(3), 84–102.
Tang, Y., Wang, L., & Shu, H. (2024). “Tax reduction” and the financialization of real enterprises: Evidence from China’s “VAT reform”. International Review of Economics & Finance, 92, 835–850. https://doi.org/10.1016/j.iref.2024.02.013
Tong, J., Su, G., & Wei, Z. (2015). “Replacing business tax with VAT”, the bargaining power of enterprises and the actual turnover tax burden of enterprises: An empirical study based on Chinese listed companies. Finance & Trade Economics, (11), 14–26. https://doi.org/10.19795/j.cnki.cn11-1166/f.2015.11.003
Wang, G., & Cao, P. (2018). The impact of “VAT reform” on the independent innovation of manufacturing enterprises: A discussion on the technology introduction of manufacturing enterprises. Journal of Finance and Economics, 44(3), 4–19. https://doi.org/10.16538/j.cnki.jfe.2018.03.001
Wang, Y., Liu, Z., & Zheng, D. (2016). Decomposition of the import and export effect of “replacing business tax with value-added tax”: A theoretical and empirical study. The Economist, (2), 84–96. https://doi.org/10.16158/j.cnki.51-1312/f.2016.02.011
Wang, H., Wei, X. T. & Cao, Q. Z. (2020). “Business tax to value-add tax” and enterprise innovation efficiency: Evidence from Quasi-natural experiment. Accounting Research, (10), 150–163.
Warwick, R., Harris, T., Phillips, D., Goldman, M., Jellema, J., Inchauste, G., & Goraus-Tańska, K. (2022). The redistributive power of cash transfers vs VAT exemptions: A multi-country study. World Development, 151, Article 105742. https://doi.org/10.1016/j.worlddev.2021.105742
Wind Economic Database. (2009–2022). https://www.wind.com.cn
Yousefi, K., & Vesal, M. (2023). The double dividend of a joint tariff and VAT reform: Evidence from Iran. The World Bank Economic Review, 37(2), 331–349. https://doi.org/10.1093/wber/lhad002
Zhang, X., Zhang, J., Yan, X., & Li, C. (2019). “Replacing business tax with VAT” and enterprise innovation: From the perspective of corporate tax burden. Journal of Public Finance, (3), 63–78. https://doi.org/10.19477/j.cnki.11-1077/f.2019.03.005
Zhou, B., & Du, L. S. (2016). The impact of replacing business tax with a VAT on fiscal revenue and the response to the reform of fiscal and taxation system. Contemporary Finance & Economics, (6), 25–33. https://doi.org/10.13676/j.cnki.cn36-1030/f.2016.06.003
Zhou, Q., Li, T., & Gong, L. (2022). The effect of tax incentives on energy intensity: Evidence from China’s VAT reform. Energy Economics, 108, Article 105887. https://doi.org/10.1016/j.eneco.2022.105887
Bilicka, K., Devereux, M., & Güçeri, I. (2023). Tax-avoidance net works and the push for a “Historic” global tax reform. Tax Policy and the Economy, 37(1), 57–108. https://doi.org/10.1086/724353
Bornemann, T., Kelley Laplante, S. O., & Osswald, B. (2023). The effect of intellectual property boxes on innovative activity and tax benefits. Journal of the American Taxation Association, 45(2), 7–33. https://doi.org/10.2308/JATA-2021-013
Brown, J. R., Martinsson, G., & Petersen, B. C. (2012). Do financing constraints matter for R&D? European Economic Review, 56(8), 1512–1529. https://doi.org/10.1016/j.euroecorev.2012.07.007
Cao, Y., Peng, K. R., & Guo, T. (2023). Research on the effect of value-added tax rate adjustment on corporate innovation. China Soft Science, (2), 214–224.
Chen, Z., Jiang, X., Liu, Z., Serrato, J. C. S., & Xu, D. Y. (2023). Tax policy and lumpy investment behaviour: Evidence from China’s VAT reform. The Review of Economic Studies, 90(2), 634–674. https://doi.org/10.1093/restud/rdac027
Chen, Z., & Wang, Y. (2016). Does “VAT reform” promote division of labor: Evidence from Chinese listed companies? Management World, (3), 36–45+59. https://doi.org/10.19744/j.cnki.11-1235/f.2016.03.004
China Stock Market & Accounting Research Database (CSMAR). (2009–2022). https://data.csmar.com
Dechezleprêtre, A., Einiö, E., Martin, R., Nguyen, K.-T., & Van Reenen, J. (2023). Do tax incentives increase firm innovation? An RD design for R&D, patents, and spillovers. American Economic Journal: Economic Policy, 15(4), 486–521. https://doi.org/10.1257/pol.20200739
Fan, Z. Y., & Peng, F. (2017). The effects of “Business tax replaced with VAT reform”on firms’ taxcuts and industrial division based on the perspective of industrial inter connection. Economic Research Journal, 52(2), 82–95.
Geringer, S. (2023). The EU VAT rate reform 2022 from an environmental policy perspective. EC Tax Review, 32(1), 16–25. https://doi.org/10.54648/ECTA2023003
Giedraitis, V. R., Stavytskyy, A., Kharlamova, G., Ulvidienė, E., & Jorgenson, A. (2024). Mitigating the shadow: Exploring taxes assolutions. Journalof International Studies, 17(2), 283–297. https://doi.org/10.14254/2071-8330.2024/17-2/15
Gong, Q., Wang L. Y., & Cai, D. L. (2016). Tax policy and entrepreneurial innovation. Zhejiang Social Sciences, (08), 41–47+59+157. https://doi.org/10.14167/j.zjss.2016.08.003
Hindriks, J., & Serse, V. (2022). The incidence of VAT reforms in electricity markets: Evidence from Belgium. International Journal of Industrial Organization, 80, Article 102809. https://doi.org/10.1016/j.ijindorg.2021.102809
Hoseini, M., & Briand, O. (2020). Production efficiency and self-enforcement in value-added tax: Evidence from state-level reform in India. Journal of Development Economics, 144, Article 102462. https://doi.org/10.1016/j.jdeveco.2020.102462
Igbinenikaro, E., & Adewusi, A. O. (2024). Tax havens re-examined: The impact of global digital tax reforms on international taxation. World Journal of Advanced Science and Technology, 5(2), 001–012. https://doi.org/10.53346/wjast.2024.5.2.0031
Ju, X. S., Lu, D., & Yu, Y. H. (2013). Financing constraints, working capital management and the persistence of firm innovation. Economic Research Journal, 48(1), 4–16.
Li, J., & Liang, X. (2016). Are private enterprises rent-seeking for innovation? – Research on mediating effect based on tax burden. Studies in Science of Science, 34(3), 453–461. https://doi.org/10.16192/j.cnki.1003-2053.2016.03.016
Li, L., & Guo, C. (2014). Whether the huge tax reduction and exemption effectively promotes the development of China’s high-techindustry. Finance & Trade Economics, (5), 14–26. https://doi.org/10.19795/j.cnki.cn11-1166/f.2014.05.002
Li, Y. Y., & Yan, C. (2018). Will replacing BT with VAT for the service industry lead the manufacturing industry to upgrade? Economic Research Journal, 53(4), 18–31.
Liu, F., Yang, Z., & Yang, X. (2016). Institutional environment, tax incentives and enterprise innovation investment. Management Review, 28(2), 61–73. https://doi.org/10.14120/j.cnki.cn11-5057/f.2016.02.006
Liu, J., Tang, H., & Wu, J. (2017). The effect of the full implementation of the VAT reform on the profitability, investment and specialised division of labor of enterprises: An analysis based on the PSM-DID model of listed companies in Hunan province. Journal of Public Finance, (12), 75–88. https://doi.org/10.19477/j.cnki.11-1077/f.2017.12.007
Liu, D., Zhou, Q., Chen, S., Wan, H., & He, H. (2021). Capital market access and innovation efficiency: A natural experiment from China’s pilot VAT reform in 2012. International Review of Economics & Finance, 71, 549–566. https://doi.org/10.1016/j.iref.2020.09.026
Lu, J., Liang, M., Dabić, M., & Lin, W. (2024). “Chasinggrade” or “Drivinginnovation”? Social responsibility grades of heavily polluting enterprises and exploratory innovation. IEEE Transactions on Engineering Management, 71, 11166–11182. https://doi.org/10.1109/TEM.2024.3411992
Lyssiotou, P., & Savva, E. (2021). Who pays taxes on basic food stuffs? Evidence from broadening the VAT base. International Tax and Public Finance, 28, 212–247.
Mamboundou, P. N. (2022). Is the value added tax reform a source of food insecurity and food poverty? The Burkina Faso case. Journal of International Development, 34(7), 1334–1346. https://doi.org/10.1002/jid.3637
Mao, J., Cao, J., & Yang, C. (2020). The impact of VAT reform on firms’ innovation behavior: A mechanism analysis and an empirical test. Taxation Research, (7), 12–19. https://doi.org/10.19376/j.cnki.cn11-1011/f.2020.07.002
Mukherjee, A., Singh, M., & Žaldokas, A. (2017). Do corporate taxes hinder innovation? Journal of Financial Economics, 124(1), 195–221. https://doi.org/10.1016/j.jfineco.2017.01.004
Nagato, T. (2024). Designing a tax system that encourages innovation in start-ups. Public Policy Review, 20(1), 1–33. https://doi.org/10.57520/prippr.20-1-1
Ni, H., Gong, L., & Wang, Q. (2016). Price effect and income distribution effect to the reform of replacing business tax for VAT. China Industrial Economics, (12), 23–39. https://doi.org/10.19581/j.cnki.ciejournal.2016.12.003
Novoa-Hoyos, A., Depoo, L., & Jiménez-Rodríguez, E. (2022). Role of financial literacy and awareness of tax impacts in an emerging economy facing tax reform. Economics and Sociology, 15(1), 222–240. https://doi.org/10.14254/2071-789X.2022/15-1/14
Peng, F., Peng, L., & Wang, Z. (2021). How do VAT reforms in the service sectors impact TFP in the manufacturing sector: Firm-level evidence from China. Economic Modelling, 99, Article 105483. https://doi.org/10.1016/j.econmod.2021.03.002
Qi, R. (2022). Top management team characteristics, overconfidence, and financial asset allocation. Amfiteatru Economic, 24(61), 759–781. https://doi.org/10.24818/EA/2022/61/759
Qiao, R., & Chen, L. (2017). The policy effect of tax shifing on the replacement of business tax by VAT – An analysis basing on cash-cash flow sensitivity. China Industrial Economics, (6),117–135. https://doi.org/10.19581/j.cnki.ciejournal.2017.06.021
Qin, J., Yang, K., & Ding, X. (2023). Can the reform of the transfer tax system affect corporate green innovation – Evidence from China’s “BT to VAT” reform. Sustainability, 15(4), Article 2986. https://doi.org/10.3390/su15042986
Sen, A., & Wallace, S. (2022). The revenue productivity of India’s subnational VAT. National Tax Journal, 75(4), 711–729. https://doi.org/10.1086/721687
Shao, Y., Chen, S., & Wang, J. (2019). Research on the impact of “VAT reform” policy on firms’ innovation investment: A difference-in-difference method based on propensity score matching. Science Research Management, 40(6), 77–85. https://doi.org/10.19571/j.cnki.1000-2995.2019.06.008
Sidek, S., & Abdulraqeeb, R. M. A. (2022). The moderating effects of government supports towards VAT compliance among SMES in UAE: A conceptual framework. Mathematical Statistician and Engineering Applications, 71(3), 84–102.
Tang, Y., Wang, L., & Shu, H. (2024). “Tax reduction” and the financialization of real enterprises: Evidence from China’s “VAT reform”. International Review of Economics & Finance, 92, 835–850. https://doi.org/10.1016/j.iref.2024.02.013
Tong, J., Su, G., & Wei, Z. (2015). “Replacing business tax with VAT”, the bargaining power of enterprises and the actual turnover tax burden of enterprises: An empirical study based on Chinese listed companies. Finance & Trade Economics, (11), 14–26. https://doi.org/10.19795/j.cnki.cn11-1166/f.2015.11.003
Wang, G., & Cao, P. (2018). The impact of “VAT reform” on the independent innovation of manufacturing enterprises: A discussion on the technology introduction of manufacturing enterprises. Journal of Finance and Economics, 44(3), 4–19. https://doi.org/10.16538/j.cnki.jfe.2018.03.001
Wang, Y., Liu, Z., & Zheng, D. (2016). Decomposition of the import and export effect of “replacing business tax with value-added tax”: A theoretical and empirical study. The Economist, (2), 84–96. https://doi.org/10.16158/j.cnki.51-1312/f.2016.02.011
Wang, H., Wei, X. T. & Cao, Q. Z. (2020). “Business tax to value-add tax” and enterprise innovation efficiency: Evidence from Quasi-natural experiment. Accounting Research, (10), 150–163.
Warwick, R., Harris, T., Phillips, D., Goldman, M., Jellema, J., Inchauste, G., & Goraus-Tańska, K. (2022). The redistributive power of cash transfers vs VAT exemptions: A multi-country study. World Development, 151, Article 105742. https://doi.org/10.1016/j.worlddev.2021.105742
Wind Economic Database. (2009–2022). https://www.wind.com.cn
Yousefi, K., & Vesal, M. (2023). The double dividend of a joint tariff and VAT reform: Evidence from Iran. The World Bank Economic Review, 37(2), 331–349. https://doi.org/10.1093/wber/lhad002
Zhang, X., Zhang, J., Yan, X., & Li, C. (2019). “Replacing business tax with VAT” and enterprise innovation: From the perspective of corporate tax burden. Journal of Public Finance, (3), 63–78. https://doi.org/10.19477/j.cnki.11-1077/f.2019.03.005
Zhou, B., & Du, L. S. (2016). The impact of replacing business tax with a VAT on fiscal revenue and the response to the reform of fiscal and taxation system. Contemporary Finance & Economics, (6), 25–33. https://doi.org/10.13676/j.cnki.cn36-1030/f.2016.06.003
Zhou, Q., Li, T., & Gong, L. (2022). The effect of tax incentives on energy intensity: Evidence from China’s VAT reform. Energy Economics, 108, Article 105887. https://doi.org/10.1016/j.eneco.2022.105887