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Tax Policy and R&D Investment by Australian Firms

  • Russell Thomson

    ()

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

This paper examines the determinants of investment in R&D by Australian firms, with a focus on the role of tax policy. The analysis considers an unbalanced panel of financial data of about 500 large Australian firms between 1990 and 2005. The principal result is that no evidence can be found that the user cost of R&D is an important determinant of firm R&D investment decisions. A corollary is that there is no evidence that tax incentives are an effective policy tool. Growth in sales is found to be the primary determinant of R&D investment, which is interpreted as evidence of the central role of demand conditions.

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File URL: http://www.melbourneinstitute.com/downloads/working_paper_series/wp2009n10.pdf
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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2009n10.

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Length: 36 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:iae:iaewps:wp2009n10
Contact details of provider: Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
Phone: +61 3 8344 2100
Fax: +61 3 8344 2111
Web page: http://www.melbourneinstitute.com/Email:


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  1. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August.
  2. Dominique Guellec & Bruno van Pottelsberghe de la Potterie, 2000. "The Impact of Public R&D Expenditure on Business R&D," OECD Science, Technology and Industry Working Papers 2000/4, OECD Publishing.
  3. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Bronwyn H. Hall, Jacques Mairesse, Lee Branstetter, and Bruno Crepon., 1998. "Does Cash Flow Cause Investment and R& D: An Exploration Using Panel Data for French, Japanese, and United States Scientific Firms," Economics Working Papers 98-260, University of California at Berkeley.
  5. James Love & Stephen Roper, 1999. "The Determinants of Innovation: R & D, Technology Transfer and Networking Effects," Review of Industrial Organization, Springer, vol. 15(1), pages 43-64, August.
  6. Nicholas Bloom & Rachel Griffith & John Van Reenen, 2007. "Do R&D Tax Credits Work? Evidence from a Panel of Countries 1979-1997," Discussion Papers 07-020, Stanford Institute for Economic Policy Research.
  7. Richardson, M. & Wilkie, S., 1988. "Incremental R$D Subsidies," Papers 133, Princeton, Woodrow Wilson School - Public and International Affairs.
  8. Hamada, Robert S, 1972. "The Effect of the Firm's Capital Structure on the Systematic Risk of Common Stocks," Journal of Finance, American Finance Association, vol. 27(2), pages 435-52, May.
  9. Teece, David J., 1986. "Profiting from technological innovation: Implications for integration, collaboration, licensing and public policy," Research Policy, Elsevier, vol. 15(6), pages 285-305, December.
  10. Bronwyn H. Hall & John van Reenen, 1999. "How Effective are Fiscal Incentives for R&D? A New Review of the Evidence," NBER Working Papers 7098, National Bureau of Economic Research, Inc.
  11. Dagenais, M. & Mohnen, P. & Therrien, P., 1997. "Do Canadian Firms Respond to Fiscal Incentives To Research and Development?," G.R.E.Q.A.M. 97b05, Universite Aix-Marseille III.
  12. L. C. Hunter & Elizabeth Webster & Anne Wyatt, 2005. "Measuring Intangible Investment," Melbourne Institute Working Paper Series wp2005n15, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  13. Richard R. Nelson, 1959. "The Simple Economics of Basic Scientific Research," Journal of Political Economy, University of Chicago Press, vol. 67, pages 297.
  14. Jeffrey I. Bernstein, 1986. "The Effect of Direct and Indirect Tax Incentives on Canadian Industrial R&D Expenditures," Canadian Public Policy, University of Toronto Press, vol. 12(3), pages 438-448, September.
  15. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  16. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  17. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  18. William Griffiths & Elizabeth Webster, 2004. "The determinants of research and development and intellectual property usage among Australian Companies, 1989 to 2002," Centre for International Economic Studies Working Papers 2004-15, University of Adelaide, Centre for International Economic Studies.
  19. George Symeonidis, 1996. "Innovation, Firm Size and Market Structure: Schumpeterian Hypotheses and Some New Themes," OECD Economics Department Working Papers 161, OECD Publishing.
  20. Martin Falk, 2006. "What drives business Research and Development (R&D) intensity across Organisation for Economic Co-operation and Development (OECD) countries?," Applied Economics, Taylor & Francis Journals, vol. 38(5), pages 533-547.
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