This study examines the effect of the 2010 tax credit reform, which reduced the tax credit rate, on firms' R&D in Taiwan. The empirical results suggested that the tax credit rate reduction has no overall negative effects on firms' R&D expenditure. By contrast, firms were observed to increase their expenditure on R&D. R&D tax credit recipients increased their R&D expenditure more than those who did not use the R&D tax credit. Moreover, we found a considerable difference in the treatment effects of the policy reform on R&D between R&D-intensive and less R&D-intensive firms. (JEL H21, H25, O31, O32, O38).