Tax Incentives and Urban Green Innovation: Evidence from the "Replacing Business Tax with Value-Added Tax (VAT)" Reform

JiaYi Qin

doi:10.63313/EPP.9044

Authors

JiaYi Qin School of Economics and Management, Southwest Petroleum University, Chengdu, 610500, China Author

DOI:

https://doi.org/10.63313/EPP.9044

Keywords:

VAT Reform, Green Innovation, Tax Incentives

Abstract

Tax reduction is an important measure to stimulate urban green innovation vitality. Taking the structural tax reduction policy of replacing business tax with VAT (the "VAT reform") as an example, this paper constructs a staggered difference-in-differences (DID) model based on panel data of 287 prefecture-level cities in China from 2009 to 2021 to evaluate the impact of the VAT reform on urban green innovation. The study finds that the implementation of the VAT reform significantly promotes the level of urban green innovation. Mechanism analysis shows that the tax reduction forces local governments to proactively adjust their expenditure structure, increasing spending on science and technology to broaden the tax base, thereby enhancing urban green innovation vitality. This paper provides empirical evidence for further leveraging the incentive role of tax incentives in green innovation.

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