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Optimal Taxation and R&D Policies

Author

Listed:
  • 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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    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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