A Multilevel Analysis of the Effect of Taxation Incentives on Innovation Performance

This study investigates how government taxation incentives stimulate R&D expenditures from the organizational field level and accordingly improve innovation performance. Our results, based on an examination of 54 Chinese High-Tech industrial parks in the period of 2002-2008, suggest that government taxation affects industrial parks' R&D expenditure in a U-shaped way over time. Although government taxation incentives have a direct impact on R&D expenditure, the R&D expenditure growth patterns are different for industrial parks with high tax incentives and low tax incentives. Moreover, instead of finding that R&D expenditure has a direct influence on innovation performance as indicated by the previous literature, our study shows that the effect is time-lagged. This paper augments the current literature by providing empirical evidence and a theoretical understanding of regional innovation motivation.