The economic impact of Taiwan's investment tax credits and its direction of adjustment

The Statute for Upgrading Industries (SUI) applies tax incentive, subsidies, and supporting measures to assist companies with industrial and technological activities, and the SUI is considered as one of Taiwan’s key industrial technology policies. In the SUI, investment tax credits for R&D, personnel training, automation activities receive the highest share of tax credits, is the most important policy measure. Under such circumstances, the purposes of this paper are twofold. First, this paper analyzes the inducement effects of the investment tax credit using the macroeconomic model to examine its economic benefit and cost. Secondly, this paper provides suggestions for the direction adjustment of the investment tax credit policy after exploring Taiwan’s current fiscal condition, theoretical arguments as well as overall economic benefits.