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Profit Taxation, R&D Spending, and Innovation

Author

Listed:
  • Andreas Lichter

    (DICE and HHU Düsseldorf)

  • Max Löffler

    (Maastricht University)

  • Ingo E. Isphording

    (IZA – Institute for Labor Economics)

  • Thu-Van Nguyen

    (Stifterverband Essen)

  • Felix Poege

    (Technology & Policy Research Initiative, Boston University and Max Planck Institute for Innovation and Competition)

  • Sebastian Siegloch

    (University of Cologne)

Abstract

We study how business taxes affect establishments’ R&D activities. Relying on geocoded panel data targeting the universe of R&D-active establishments in Germany, we exploit around 7,300 changes in the local business tax rate over the period 1987 2013 for identification. Using event study techniques, we find a sizable negative and statistically significant effect of an increase in the local business tax on establishments’ total R&D spending and patents filed. Zooming into the process of innovation production, we uncover substantial heterogeneity in the impact of business taxation for various R&D inputs, among establishment characteristics, and for different types of research projects.

Suggested Citation

  • Andreas Lichter & Max Löffler & Ingo E. Isphording & Thu-Van Nguyen & Felix Poege & Sebastian Siegloch, 2022. "Profit Taxation, R&D Spending, and Innovation," ECONtribute Discussion Papers Series 202, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:202
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    1. Aria Ardalan & Sebastian G. Kessing & Salmai Qari & Malte Zoubek, 2023. "Does capital bear the burden of local corporate taxes? Evidence from Germany," Volkswirtschaftliche Diskussionsbeiträge 194-23, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    2. Kurt Schmidheiny & Sebastian Siegloch, 2023. "On event studies and distributed‐lags in two‐way fixed effects models: Identification, equivalence, and generalization," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(5), pages 695-713, August.

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    More about this item

    Keywords

    corporate taxation; firms; R&D; innovation; patents;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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