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R&D Tax Policy During the 1980s: Success or Failure?

In: Tax Policy and the Economy, Volume 7

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  • Bronwyn H. Hall

Abstract

R&D; tax policy in the United States during the 1980s is evaluated, with particular emphasis placed on quantifying the impact of the R&D; tax credit on the R&D; investment of manufacturing firms. Using publicly available data on R&D; spending at the firm level, I estimate an average tax price elasticity for R&D; spending which is in the neighborhood of unity in the short run. Although the effective credit rate is small (less than five percent until 1990), this relatively strong price response means that the amount of additional R&D; spending thus induced was greater than the cost in foregone tax revenue. The recent evolution of features of the U.S. corporate tax system which affect R&D; is also reviewed and my results are compared with those of previous researchers. The conclusion is that the R&D; tax credit seems to have had the intended effect, although it took several years for firms to fully adjust. I also argue that although the high correlation over time of R&D; spending at the firm level makes it difficult to estimate long-run effects precisely, the same high correlation makes it probable that these effects are large.

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This chapter was published in:

  • James M. Poterba, 1993. "Tax Policy and the Economy, Volume 7," NBER Books, National Bureau of Economic Research, Inc, number pote93-1, Ekim.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10876.

    Handle: RePEc:nbr:nberch:10876

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    Cited by:
    1. James R. Hines, Jr., 1994. "Taxes, Technology Transfer, and the R&D Activities of Multinational Firms," NBER Working Papers 4932, National Bureau of Economic Research, Inc.
    2. Rafal Kierzenkowski, 2009. "The Challenge of Restoring French Competitiveness," OECD Economics Department Working Papers 720, OECD Publishing.

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