The Impact of Fiscal Policies on R&D at the Firm Level

The existing researches about the effects of public policies on promoting enterprise innovation are mostly on large enterprises, but few on small and medium-sized enterprises. The literature on small and medium-sized enterprises in developing countries is even less. As an important part of the world economy and an important representative of developing countries, it is necessary to study the impact of China's public subsidies and tax incentives on the innovation and research and development of Chinese SMEs. Based on the relevant enterprise data, using the LSDV model, this paper empirically finds that the Chinese government's fiscal subsidy policies indeed promote enterprise innovation. After controlling for the year fixed effect and industry effect, government subsidies did stimulate enterprises' R&D investment, but the stimulus effect was very weak. Considering the endogeneity of public subsidies, the author added the lag term of public subsidies into the model, and the promotion effect of the policy was significantly enhanced. With the expansion of enterprise scale and the passage of enterprise establishment years, enterprise innovation investment decreases. The conclusion of this paper provides a basis for the government to formulate relevant policies. Government subsidies should be increased for newly established companies and for small and micro businesses.