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Structural Change In The Research And Experimentation Tax Credit: Success Or Failure?

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  • Gupta, Sanjay
  • Hwang, Yuhchang
  • Schmidt, Andrew P.
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    Abstract

    This study examines the availability and incentive effects of the Research and Experimentation tax credit following structural changes in the computation of the credit enacted in the Omnibus Budget Reconciliation Act of 1989 (OBRA89). We find that overall firm eligibility declined after OBRA89, but eligibility increased for firms in high-tech industries, relative to firms in other industries. Dynamic panel regressions indicate that median research and development spending intensity of high-tech (other) firms increased by approximately 15.9 (9.4) percent from 1986–1989 to 1990–1994. For firms that qualified for the credit, our estimates imply approximately $2.08 of additional research and development spending per dollar of revenue forgone.

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    Bibliographic Info

    Article provided by National Tax Association in its journal National Tax Journal.

    Volume (Year): 64 (2011)
    Issue (Month): 2 (June)
    Pages: 285-322

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    Handle: RePEc:ntj:journl:v:64:y:2011:i:2:p:285-322

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    1. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
    2. Swenson, C. W., 1992. "Some tests of the incentive effects of the research and experimentation tax credit," Journal of Public Economics, Elsevier, vol. 49(2), pages 203-218, November.
    3. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    4. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
    5. Graham, John R., 1996. "Debt and the marginal tax rate," Journal of Financial Economics, Elsevier, vol. 41(1), pages 41-73, May.
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