IDEAS home Printed from https://ideas.repec.org/p/hst/ghsdps/gd11-220.html
   My bibliography  Save this paper

Does an R&D Tax Credit Affect R&D Expenditure? The Japanese Tax Credit Reform in 2003

Author

Listed:
  • Hiroyuki Kasahara
  • Katsumi Shimotsu
  • Michio Suzuki

Abstract

To what extent does a tax credit affect firms' R&D activity? What are the mechanisms? This paper examines the effect of the 2003 Japanese tax credit reform on firms' R&D investment by exploiting cross-sectional variation across firms in the changes in the effective tax credit rate between 2002 and 2003. When we use the benchmark sample to estimate the first-difference equation between 2002 and 2003, our estimate for the elasticity of R&D investment with respect to the effective tax credit rate is 2.05% with a standard error of 0.60, and the estimated effect of the R&D tax credit on R&D investment is significantly larger for small firms with relatively large outstanding debts. When we use different methods and different samples, we find mixed evidence for the positive effect of the R&D tax credit, but an interaction term between the effective tax credit rate and the debt-to-asset ratio is always estimated to be significant for small firms, providing robust evidence for the role of financial constraint in determining the effect of the R&D tax credit.

Suggested Citation

  • Hiroyuki Kasahara & Katsumi Shimotsu & Michio Suzuki, 2012. "Does an R&D Tax Credit Affect R&D Expenditure? The Japanese Tax Credit Reform in 2003," Global COE Hi-Stat Discussion Paper Series gd11-220, Institute of Economic Research, Hitotsubashi University.
  • Handle: RePEc:hst:ghsdps:gd11-220
    as

    Download full text from publisher

    File URL: http://gcoe.ier.hit-u.ac.jp/research/discussion/2008/pdf/gd11-220.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Bloom, Nick & Griffith, Rachel & Van Reenen, John, 2002. "Do R&D tax credits work? Evidence from a panel of countries 1979-1997," Journal of Public Economics, Elsevier, vol. 85(1), pages 1-31, July.
    2. KOBAYASHI Yohei, 2011. "Effect of R&D Tax Credits for Small and Medium-sized Enterprises in Japan: Evidence from firm-level data," Discussion papers 11066, Research Institute of Economy, Trade and Industry (RIETI).
    3. Ogawa, Kazuo, 2007. "Debt, R&D investment and technological progress: A panel study of Japanese manufacturing firms' behavior during the 1990s," Journal of the Japanese and International Economies, Elsevier, vol. 21(4), pages 403-423, December.
    4. James R. Brown & Steven M. Fazzari & Bruce C. Petersen, 2009. "Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom," Journal of Finance, American Finance Association, vol. 64(1), pages 151-185, February.
    5. Hall, Bronwyn & Van Reenen, John, 2000. "How effective are fiscal incentives for R&D? A review of the evidence," Research Policy, Elsevier, vol. 29(4-5), pages 449-469, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Castellacci, Fulvio & Lie, Christine Mee, 2015. "Do the effects of R&D tax credits vary across industries? A meta-regression analysis," Research Policy, Elsevier, vol. 44(4), pages 819-832.

    More about this item

    Keywords

    R&D; Tax Credit; Fnancial Constraint; Japan;

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hst:ghsdps:gd11-220. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tatsuji Makino). General contact details of provider: http://edirc.repec.org/data/iehitjp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.