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State-Level R&D Tax Credits: A Firm-Level Analysis

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  • Paff Lolita A

    ()
    (Penn State Berks - Lehigh Valley College)

Abstract

California’s changes in R&D tax credit rates on biopharmaceutical and software firms’ research investment during 1994-1996 and 1997-1999 is compared using two approaches. Consistent with the federal research tax credit literature, the difference-in-differences analysis provides some evidence of increased R&D expenditure in response to research tax credit rate increases. In contrast, the estimated tax price elasticities obtained by computing and testing the tax prices for in-house research are dramatically higher than the existing literature’s estimates near unity. Possible explanations include firms’ greater sensitivity to state-level policy, industry factors, sample characteristics and measurement error. For contract research with universities and other not-for-profit research organizations, the findings suggest a tax credit may not be the optimal policy tool. Finally, state-level R&D incentives do not appear to have equal incentive effects across industries.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 5 (2005)
Issue (Month): 1 (September)
Pages: 1-27

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Handle: RePEc:bpj:bejeap:v:topics.5:y:2005:i:1:n:17

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Cited by:
  1. Christoph Ernst & Katharina Richter & Nadine Riedel, 2013. "Corporate taxation and the quality of research & development," Working Papers, Oxford University Centre for Business Taxation 1301, Oxford University Centre for Business Taxation.
  2. Yang, Chih-Hai & Huang, Chia-Hui & Hou, Tony Chieh-Tse, 2012. "Tax incentives and R&D activity: Firm-level evidence from Taiwan," Research Policy, Elsevier, Elsevier, vol. 41(9), pages 1578-1588.
  3. Castellacci, Fulvio & Lie, Christine, 2013. "Do the effects of R&D tax credits vary across industries? A meta-regression analysis," MPRA Paper 47937, University Library of Munich, Germany.
  4. Kasahara, Hiroyuki & Shimotsu, Katsumi & Suzuki, Michio, 2014. "Does an R&D tax credit affect R&D expenditure? The Japanese R&D tax credit reform in 2003," Journal of the Japanese and International Economies, Elsevier, vol. 31(C), pages 72-97.
  5. Robert Atkinson, 2007. "Expanding the R&E tax credit to drive innovation, competitiveness and prosperity," The Journal of Technology Transfer, Springer, Springer, vol. 32(6), pages 617-628, December.
  6. Daniel J. Wilson, 2005. "Beggar thy neighbor? the in-state vs. out-of-state impact of state R&D tax credits," Working Paper Series, Federal Reserve Bank of San Francisco 2005-08, Federal Reserve Bank of San Francisco.
  7. Syoum Negassi & Jean-Francois Sattin, 2014. "Evaluation of Public R&D Policy: A Meta-Regression Analysis," Working Papers, University of Delaware, Department of Economics 14-09, University of Delaware, Department of Economics.

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