Impact of R&D tax credit policy adjustment on enterprise innovation: evidence from China

Using micro-data of Chinese listed firms from 2008 to 2020, this study explores the effects of the expanding scope and intensity of the R&D tax credit policy on firms' innovation quantity and quality through two policy adjustments. We find that expanding the scope of the policy can only increase the quantity of innovation, while increasing the intensity of the policy can improve both the quantity and quality of innovation. Increasing policy intensity is also more effective based on the heterogeneity analysis in terms of firm ownership and industry. The findings have policy implications for the government to change the R&D tax credit policy further to promote practical innovation by firms.