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Optimal Taxation and R&D Policies

Author

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  • Stefanie Stantcheva

    (Harvard University)

Abstract

We study the optimal design of firm taxation and R&D subsidies in a dynamic model in which the returns to R&D investment by firms are heterogeneous across firms and uncertain over time. A firm's quality and risky returns are private information. We use a mechanism design approach to solve for the optimal taxation of firms and R&D policies over the firms' life cycle. We highlight the crucial parameters and elasticities that determine the sign and magnitude of the optimal policies. We calibrate the model to U.S. firm data to quantitatively illustrate the evolution of the optimal taxes and subsidies over firms' life cycles. Finally, we evaluate the performance of simpler tax and subsidy instruments, namely linear taxes and R&D subsidies, size-dependent, or firm age-dependent policies.

Suggested Citation

  • Stefanie Stantcheva, 2015. "Optimal Taxation and R&D Policies," 2015 Meeting Papers 1533, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:1533
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    References listed on IDEAS

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    1. repec:pit:wpaper:535 is not listed on IDEAS
    2. Chari, V.V. & Golosov, Mikhail & Tsyvinski, Aleh, 2012. "Prizes and patents: Using market signals to provide incentives for innovations," Journal of Economic Theory, Elsevier, vol. 147(2), pages 781-801.
    3. Nicolas Serrano-Velarde & Douglas Hanley & Ufuk Akcigit, 2012. "Back to Basics: Basic Research Spillovers, Innovation Policy and Growth," 2012 Meeting Papers 665, Society for Economic Dynamics.
    4. Zvi Griliches, 1998. "R&D and Productivity: The Econometric Evidence," NBER Books, National Bureau of Economic Research, Inc, number gril98-1, March.
    5. Mikhail Golosov & Aleh Tsyvinski & Nicolas Werquin, 2014. "A Variational Approach to the Analysis of Tax Systems," NBER Working Papers 20780, National Bureau of Economic Research, Inc.
    6. Nicolas Werquin, 2016. "Income taxation with frictional labor supply," 2016 Meeting Papers 603, Society for Economic Dynamics.
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    Citations

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    Cited by:

    1. Steve Raymond & Lukas Schmid & Anastasios Karantounias & Mariano Croce, 2017. "A Tax Plan for Endogenous Innovation," 2017 Meeting Papers 109, Society for Economic Dynamics.
    2. Alex Bell & Raj Chetty & Xavier Jaravel & Neviana Petkova & John Van Reenen, 2019. "Who Becomes an Inventor in America? The Importance of Exposure to Innovation," The Quarterly Journal of Economics, Oxford University Press, vol. 134(2), pages 647-713.
    3. Gordon, Roger & Sarada,, 2018. "How should taxes be designed to encourage entrepreneurship?," Journal of Public Economics, Elsevier, vol. 166(C), pages 1-11.
    4. Ufuk Akcigit, 2017. "Innovation and Trade Policy in a Globalizing World," 2017 Meeting Papers 1627, Society for Economic Dynamics.

    More about this item

    JEL classification:

    • H0 - Public Economics - - General
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • 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
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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