This paper investigates the impact of tax cuts on enterprise innovation in China, focusing on listed manufacturing firms from 2008-2019. It examines three mechanisms: mitigating financing constraints, promoting specialized division of labor, and creating added value. Using a two-stage least squares (2SLS) regression to address endogeneity, the study finds that tax cuts positively affect innovation, primarily through internal and equity financing. However, the impact varies across policy types and firm characteristics. The paper concludes with policy recommendations for optimizing tax reduction policies to promote innovation in China.

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