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How has tax affected the changing cost of R&D? Evidence from eight countries


  • Nicolas Bloom

    (Institute for Fiscal Studies)

  • Lucy Chennells

    (Institute for Fiscal Studies)

  • Rachel Griffith

    () (Institute for Fiscal Studies and IFS and Manchester)

  • John Van Reenen

    (Institute for Fiscal Studies)


This paper describes the evolution of the tax treatment of investment in R&D in Australia, Canada, France, Great Britain, Germany, Italy, Japan and the USA between 1979 and 1994. Estimates of the cost of R&D capital are provided and the methodology used is contrasted with other ones used in the literature. Four …ndings are highlighted. First, there appear to be substantial differences in the cost of R&D capital across countries at any given point in time. Secondly, there has been a general trend towards more generous tax treatment of R&D, although some countries have moved much more rapidly than others. Thirdly, there is an increasing diversity in the cost of R&D capital between countries, a pattern that is in stark contrast to the convergence in the tax treatment of physical capital. Finally, simulations of the impact of four tax systems on a sample of R&D performing firms illustrates the within-country heterogeneity in the impact of R&D tax credits.

Suggested Citation

  • Nicolas Bloom & Lucy Chennells & Rachel Griffith & John Van Reenen, 1996. "How has tax affected the changing cost of R&D? Evidence from eight countries," IFS Working Papers W97/03, Institute for Fiscal Studies.
  • Handle: RePEc:ifs:ifsewp:97/03

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    References listed on IDEAS

    1. Mayer, Colin, 1988. "New issues in corporate finance," European Economic Review, Elsevier, vol. 32(5), pages 1167-1183, June.
    2. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-1460, September.
    3. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-1426, November.
    4. Colin Mayer, 1990. "Financial Systems, Corporate Finance, and Economic Development," NBER Chapters,in: Asymmetric Information, Corporate Finance, and Investment, pages 307-332 National Bureau of Economic Research, Inc.
    5. Nickell, Stephen, 1985. "Error Correction, Partial Adjustment and All That: An Expository Note," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 47(2), pages 119-129, May.
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    Cited by:

    1. Bloom, Nicholas & Griffith, Rachel & Van Reenen, John, 2000. "Do R&D Credits Work? Evidence From A Panel Of Countries 1979-97," CEPR Discussion Papers 2415, C.E.P.R. Discussion Papers.
    2. Jonathan Eaton & Eva Gutierrez & Samuel Kortum, 1998. "European technology policy," Economic Policy, CEPR;CES;MSH, vol. 13(27), pages 403-438, October.
    3. 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.

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