Will the Tax Reduction and Exemption Policy for High Technology Enterprises Improve the GVC Position of Chinese Firms?

Abstract

Figuring out how government innovation incentive policies affect the GVC (global value chain) position at a micro level is essential for choosing anaccurate policy to encourage self-dependent innovation. We examined whether and how China’s preferential tax policies enhance the GVC position of firms via firm-level data using the method of difference in differences (DID), taking the tax reduction and exemption policy of high-technology enterprises as an example. In addition, the firm heterogeneity of different factor intensities and regions was also examined. The empirical results show that, firstly, the tax reduction and exemption policy of high-technology enterprises has a significant positive impact on the firm GVC position. Secondly, this positive effect is more prominent in labor-intensive firms, capital-intensity firms and eastern enterprises. Thirdly, analysis of the mechanism indicated that the tax reduction and exemption policy of high-technology enterprises improves the firm GVC position by stimulating growth in production efficiency.