The purpose of this paper is to examine the impact of government investment taxcredits on firms' research and development (R & D) activities and research efficiency as well as to assess their overall economic benefits. This paper conducts a survey of Taiwanese manufacturing industries to investigate the effects of R&D tax credits. Our analysis, using the Linear Structural Relation model (LISREL), suggests that government investment tax credits generate a positive impact on firms' R&D expenditure. Furthermore,we also find that there exists a positive linkage between firms' R&D expenditure and their products' value-added.