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Taxation and R&D: An Investigation of the Push and Pull Effects

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  • Kenneth J. McKenzie
  • Natalia Sershun

Abstract

We in vestigate the extent of the impact that direct tax subsidies (the "push" effect) and the competitiveness of the production tax system (the "pull" effect) have on research and development. A panel dataset of nine countries over nineteen years is used to estimate a dynamic fixed effects model of aggregate R&D. Both effects are significant and economically important. The short-run elasticity of R&D with respect to the push effect ranges from -0.12 to -0.22, while the long-run elasticity ranges from -0.46 to -0.83; the short-run elasticity of the pull effect ranges from -0.15 to -0.28, while the long-run elasticity ranges from -0.58 to -0.83.

Suggested Citation

  • Kenneth J. McKenzie & Natalia Sershun, 2010. "Taxation and R&D: An Investigation of the Push and Pull Effects," Canadian Public Policy, University of Toronto Press, vol. 36(3), pages 307-324, September.
    • Handle: RePEc:cpp:issued:v:36:y:2010:i:3:p:307-324
    DOI: 10.3138/cpp.36.3.307
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    Cited by:

    1. Daniel Gama e Colombo, 2016. "Impact Assessment of Tax Incentives to Foster Industrial Innovation in Brazil: The Case of Law 11,196/05," Working Papers, Department of Economics 2016_30, University of São Paulo (FEA-USP).
    2. Crespi, Gustavo & Giuliodori, David & Giuliodori, Roberto & Rodriguez, Alejandro, 2016. "The effectiveness of tax incentives for R&D+i in developing countries: The case of Argentina," Research Policy, Elsevier, vol. 45(10), pages 2023-2035.
    3. Bev Dahlby & Kevin Milligan, 2017. "From theory to practice: Canadian economists contributions to public finance," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1324-1347, December.
    4. Köhler, Christian & Larédo, Philippe & Rammer, Christian, 2012. "Fiscal incentives for business R&D: Compendium of evidence on the effectiveness of innovation policy intervention," ZEW Expertises, ZEW - Leibniz Centre for European Economic Research, number 111472, September.

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