This paper studies the relationship between firms' innovation activities, financial constraints and corporate tax reform in China. A firm-level proxy for financial constraints is derived using cash-flow analysis and subsequently linked to various innovation activities of the firm. As an...

China reformed value-added tax (VAT) by removing investment from the tax base in northeastern provinces in 2004, which is a “natural experiment” of its tax system. Using difference-in-differences method, this paper for the first time investigates the impact of VAT reform on China firms'...