Empirical analysis of the effect of tax incentives on science & technology investment: Evidence from high-tech enterprises in China

As a key driver of a nation's economic development, the advancement of science and technology has prompted many governments around the world to introduce various policies aimed at encouraging investment in this sector. Among these, preferential tax policies serve as a crucial tool to stimulate such investment. This study conducts a comparative analysis of tax incentives for promoting technological investment in both high-income developed countries in the West and middle-income developing countries in Asia. The findings highlight the advantages of tax incentives in developed countries and reveal specific deficiencies in the policies implemented by developing countries. Based on Innovation Theory, Tax Regulation Theory, Government Intervention Theory, and the principles of tax incentives, this research focuses on listed high-tech enterprises in China as its primary research subject. Four major tax incentives implemented in China over the past 15 years are selected for analysis. These include preferential corporate income tax rates, additional deductions for R&D expenditure, accelerated depreciation of fixed assets, and preferential value-added tax (VAT) policies. This study assumes that tax incentive policies have a stimulating effect on technological investment. Specifically, it is hypothesized that the additional R&D deduction exerts the most significant incentive effect; the effect of accelerated depreciation of fixed assets shows the most significant variation across industries, and there are no significant regional differences in the effectiveness of tax incentive policies. Using Stata 17.0 for quantitative analysis, a regression model is developed to examine the relationship between tax incentives and technological capital. Basic regression analysis and robustness tests are conducted on the model. Additionally, a comparative analysis is carried out across regions with different levels of economic development in eastern and western China. The research findings confirm all proposed hypotheses and theories. Preferential tax policies are found to have a positive incentive effect on technological investment. The additional R&D deduction emerges as the most effective incentive, the accelerated depreciation policy demonstrates the most apparent industry-specific differences, and regional differences in tax incentive effects are insignificant. The imbalance in regional economic development is mainly attributed to the distribution of industries. Based on these findings, developing countries should draw on the experiences of developed countries, reasonably plan tax incentive measures, making strategic arrangements for other tax incentives, and rationally planning industrial layouts. These steps can help implement more effective tax incentive policies to stimulate science and technology investment, thereby enhancing the development of science and technology and also economic growth.