Plausibly Exogenous [1656] - Tax Cuts (08/15/2024)

LHS Variable
Enterprise innovation

RHS Variable
Tax cuts

Source of Exogenous Variation
China’s Ministry of Finance and the State Taxation Administration implemented a “BT to VAT” (business tax to VAT) policy in Shanghai as a pilot project on January 1, 2012, and expanded its scope into different regions, phases, and industries. While a business tax is levied on the full amount of sales, the VAT is a deductive system that is incrementally assessed, based on a product or service’s increase in value at each stage of production or distribution.

- Lan, Wang, and Cao (2020), “Tax cuts and enterprises' R&D intensity: Evidence from a natural experiment in China”