Corporate taxation and the quality of research and development
AbstractThis paper examines the impact of tax incentives on corporate research and development (R&D) activity. Traditionally, R&D tax incentives have been provided in the form of special tax allowances and tax credits. In recent years, several countries moreover reduced their income tax rates on R&D output. Previous papers have shown that all three tax instruments are effective in raising the quantity of R&D related activity. We provide evidence that, beyond this quantity effect, corporate taxation also distorts the quality of R&D projects, i.e. their innovativeness and revenue potential. Using rich data on corporate patent applications to the European patent office, we find that a low tax rate on patent income is instrumental in attracting innovative projects with a high earnings potential and innovation level. The effect is statistically significant and economically relevant and prevails in a number of sensitivity checks. R&D tax credits and tax allowances are in turn not found to exert a statistically significant impact on project quality. --
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Bibliographic InfoPaper provided by University of Hohenheim, Center for Research on Innovation and Services (FZID) in its series FZID Discussion Papers with number 66-2013.
Date of creation: 2013
Date of revision:
corporate taxation; research and development; micro data;
Other versions of this item:
- Christof Ernst & Katharina Richter & Nadine Riedel, 2013. "Corporate Taxation and the Quality of Research and Development," CESifo Working Paper Series 4139, CESifo Group Munich.
- Ernst, Christof & Richter, Katharina & Riedel, Nadine, 2013. "Corporate taxation and the quality of research and development," ZEW Discussion Papers 13-010, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- H7 - Public Economics - - State and Local Government; Intergovernmental Relations
- J5 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining
This paper has been announced in the following NEP Reports:
- NEP-ACC-2013-03-09 (Accounting & Auditing)
- NEP-ALL-2013-03-09 (All new papers)
- NEP-EUR-2013-03-09 (Microeconomic European Issues)
- NEP-INO-2013-03-09 (Innovation)
- NEP-IPR-2013-03-09 (Intellectual Property Rights)
- NEP-KNM-2013-03-09 (Knowledge Management & Knowledge Economy)
- NEP-PBE-2013-03-09 (Public Economics)
- NEP-PPM-2013-03-09 (Project, Program & Portfolio Management)
- NEP-PUB-2013-03-09 (Public Finance)
- NEP-TID-2013-03-09 (Technology & Industrial Dynamics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Johannes Becker & Clemens Fuest, 2007. "Quality versus Quantity – The Composition Effect of Corporate Taxation on Foreign Direct Investment," CESifo Working Paper Series 2126, CESifo Group Munich.
- Laura Abramovsky & Rachel Griffith & Gareth Macartney & Helen Miller, 2008. "The location of innovative activity in Europe," IFS Working Papers W08/10, Institute for Fiscal Studies.
- Nick Pantaleo & Finn Poschmann & Scott Wilkie, 2013. "Improving the Tax Treatment of Intellectual Property Income in Canada," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 379, April.
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