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Beggar Thy Neighbor? The In-State, Out-of-State, and Aggregate Effects of R&D Tax Credits

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  • Daniel J. Wilson

    (Federal Reserve Bank of San Francisco)

Abstract

The proliferation of R&D tax incentives among U.S. states in recent decades raises two questions: (i) Are these tax incentives effective in increasing in-state R&D? (ii) How much of any increase is due to R&D being drawn away from other states? This paper answers (i) "yes" and (ii) "nearly all." The paper estimates an augmented R&D factor demand model using state panel data from 1981 to 2004. I estimate that the long-run elasticity of in-state R&D with respect to the in-state user cost is about -2.5, while its elasticity with respect to out-of-state user costs is about +2.5, suggesting a zero-sum game among states. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Daniel J. Wilson, 2009. "Beggar Thy Neighbor? The In-State, Out-of-State, and Aggregate Effects of R&D Tax Credits," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 431-436, May.
    • Handle: RePEc:tpr:restat:v:91:y:2009:i:2:p:431-436
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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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