Job Market Paper

Does Outsourced R&D Crowd Out In-house R&D? Firm-Level Evidence from China’s Tax Reform

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Abstract: Using firm-level panel data from the National Tax Survey, this paper examines the relationship between outsourced R&D and in-house R&D. The identification relies on a natural experiment created by the "business tax to value-added tax reform" (BT-to-VAT) in China, which reduced the costs of outsourced R&D for manufacturing firms. Our difference-in-differences estimates indicate that the BT-to-VAT reform increased both outsourced R&D and in-house R&D for manufacturing firms. To separate the substitution effect from the scale effect, we estimate the elasticity of substitution between outsourced R&D and in-house R&D with a structural model. We find that they are complementary inputs in large-size firms or high-technology firms. But the relationship turns out to be substitutes among small-size firms or low-technology firms. We conclude that the relationship between outsourced and in-house R&D depends on the firms' size and technology level.

Working Papers

How Do Tax Incentives Affect Productivity? Firm-Level Evidence from China

Abstract: We explore the effects of all stages of BT-to-VAT reform on the productivity of both the manufacturing and service sectors. For the manufacturing sector, we utilize backward linkage from the input-output table to connect this reform with manufacturing firms. The reduced form results show that BT-to-VAT reform significantly increases the productivity of manufacturing and service firms. Furthermore, we investigate the channels through which productivity is positively affected. We find that the BT-to-VAT reform has a positive influence on service outsourcing in both the service and manufacturing sectors, indicating that BT-to-VAT reform may affect TFP in both manufacturing and service sectors through service outsourcing. For the service firms, both service outsourcing and material outsourcing rise, which means that material outsourcing is another channel besides service outsourcing, through which service firms’ productivity is positively influenced by the BT-to-VAT reform.