Since China stepped into the era of “New Normal” and the burning trade dispute between China and the United States, the importance of technological innovations has been deeply recognized by the public and policymakers. Fiscal policy providing tax incentives and subsidies for R&D-intensive firms is able to facilitate the progress of innovations and, furthermore, the long-run economic growth. However, the government needs to finance its expenditure on productive public goods, e.g. infrastructures, via taxes. Therefore, a natural tradeoff appears between R&D facilitation and productive government spending based on the tax burden adjustment. Given that the current aggregate tax burden in China is around 18%, the State Council of China has determined to promote the “tax cut & administrative fees reduction” policy since the beginning of 2018. Relying on closed-form solutions to the theoretical models, this paper documents the interactions among productive government spending, innovations and tax burden. Moreover, based on the model calibration and empirical analysis, we try to find out the optimal tax burden and R&D subsidy policy that maximizes the steady-state economic growth rate in China. Thus, this paper contributes to understand the growth effects of and provide ground for the recent tax and fees reduction policy. Specifically, this paper develops an innovation-based growth framework by introducing productive government spending and aggregate tax burden into the quality-ladder model. In this model, R&D firms create a (more advanced) new patent to improve the quality of their products (machines). Machines are intermediates in the production of final goods, and only the newest patent holder could produce machines from which that patent holder enjoys the monopolistic profit. This is the fundamental incentive for R&D investment and technological innovations, which is also the source of the long-run economic growth. However, since the government spending in the model is productive, R&D-promoting tax incentives and subsidies will undermine the room of productive public goods and depress economic growth. According to the theoretical model, the aggregate tax burden generates an inverted-U shaped effect on the long-term growth. That is, if the aggregate tax burden is higher (lower) than a threshold, an increase in the aggregate tax burden will reduce (boost) the steady-state economic growth rate. Meanwhile, the R&D subsidy rate has an inverted-U shaped effect on the long-term growth as well. Additionally, the optimal R&D subsidy policy and tax policy depend on each other, which requests the government to balance the policy mix carefully.