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Labor tax and relative cost of R&D

Author

Listed:
  • Monika Lewandowska-Kalina

    (Warsaw School of Economics)

  • Lech Kalina

    (Warsaw School of Economics)

Abstract

This paper examines the impact of taxation of labor on investment in Research and Development. Given the central role of R&D as an en- gine of business expansion and economy growth, issue of estimating the barriers to R&D is a vital one, both from theoretical and practical point of view. We analyse the impact of labor taxation on decision to invest in R&D. We show that labor taxation changes relative costs of R&D investment versus fixed capital formation. It leads to allocation of investment more towards physical capital formation than R&D invest- ment. In the empirical part of the paper, using panel and cross-section of countries, we shed light on the impact of taxation of labor on R&D. Our estimates indicate that labor tax has a significant adverse impact on R&D investment, and its negative impact is larger for R&D than for physical capital.

Suggested Citation

  • Monika Lewandowska-Kalina & Lech Kalina, 2014. "Labor tax and relative cost of R&D," Applied Econometrics Papers, Department of Applied Econometrics, Warsaw School of Economics, vol. 1(1), pages 1-19.
    • Handle: RePEc:wse:journl:v:1:y:2014:i:1:p:1-19
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    References listed on IDEAS

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