Template-type: ReDIF-Paper 1.0 Author-Name: Yongzheng LiuAuthor-Email: yongzheng.liu@ruc.edu.cn Author-Workplace-Name: School of Finance, Renmin University of China Author-Workplace-Homepage: http://www.ruc.edu.cn/en Author-Name: Jie Mao Author-Email: maojie@uibe.edu.cn Author-Workplace-Name: Department of Public Finance and Taxation, School of International Trade and Economics, University of International Business and Economics Author-Workplace-Homepage: http://www.uibe.cn/app/eng/ Title: How do Tax Incentives Affect Investment and Productivity? Firm-Level Evidence from China Abstract: China initiated a critical value-added tax reform in 2004. Completed in 2009, it introduced permanent tax credit for firms' investment infixed assets. We use a quasi-experimental design and a unique firm-level dataset covering all sizes of firms across a broad range of sectors and regions between 2005 and 2012, to test whether the reform promoted firms' investment and productivity. We estimate that, on average, the reform raised investment and productivity of the treated firms relative to the control firms by 8.8 percent and 3.7 percent, respectively. We also show that the positive effects tend to be strengthened for firms with financial constraints. Length: 48 pages Creation-Date: 2017-08 File-URL: http://icepp.gsu.edu/files/2017/09/paper1716.pdf File-Format: application/pdf Handle: RePEc:ays:ispwps:paper1716