The purposes of this paper are to explore the induced effects and resulting impacts of government investment tax credit for the purchase of automation equipment and technology in the Taiwanese manufacturing industry in 1994. Furthermore, the costs and benefits of government tax credit on firms’ investment in automation is analyzed.
After surveying 294 Taiwanese firms, the major conclusions can be summarized as follows:
1. In 1994, investment in automation by Taiwanese firms had a positive influence on their production performance and ability to adjust to market change; production increased from 17.5 % to 25 %. Product defect rates declined about 15 %.
2. In cost-benefit analysis, we found that each dollar government tax revenue loss can create about 0.79 dollar future tax revenue in the Taiwanese electrical component industry. In the steel industry, the figure is 0.54.
3. The cancellation of discriminatory tax credit rates between domestic and foreign automation equipment will not cause too much damage to the Taiwanese automation industry, Less than 20 percent of firms will switch to purchasing foreign automation machines after the government cancels the higher tax credit rate for domestic purchases.
