Uncertainty in firm innovation scheme and impact of green fiscal policy; Economic recovery of Chinese firms in the post-Covid-19 era

Abstract

With the Covid-19 outbreak, changing prices of natural resource raw materials are driving up industrial costs, limiting output, and jeopardising economic growth. To encourage the revival of the green economy, fiscal and budgetary policies must focus on fostering innovation and growth. This essay investigates the incentives and mechanics of innovation as a recovery strategy by looking at the impact of tiny tax cuts on energy. Using quarterly data from listed Chinese firms from Q1 2019 to Q2 2021, estimate and draw numerous conclusions using a variance-variance technique. To begin with, innovation is a means of regaining and expanding market share, and tax incentives to enhance energy efficiency may be extremely beneficial to a company’s inventive efforts. Second, our findings suggest that tax incentives for energy efficiency encourage businesses to invest in innovation by alleviating financial constraints. Finally, corporations may cut financial expenditures and internal cash flow by sponsoring creative activities. The findings have significant policy implications, since they show that successful eco-design fiscal policies might be part of a post-Covid-19 recovery business transformation programme.