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R&D Tax Policy During the Eighties: Success or Failure?

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  • Bronwyn Hall

Abstract

R&D Tax policy in the United States during the nineteen-eighties is evaluated. with particular emphasis placed on quantifying the impact of the R&D tax credit on the R&D investment of manufacturing firms. Using publicly available data on R&D spending at the firm level, I estimate an average price elasticity for R&D spending which is in the neighborhood of unity in the short run. Although the effective credit rate is small (less than five percent until 1990), this relatively strong price response means that the amount of additional R&D spending thus induced was greater than the cost in foregone tax revenue. The recent evolution of features of the U.S. corporate tax system which affect R&D is also reviewed and my results are compared with those of previous researchers. The conclusion is that R&D tax credit seems to have had the intended effect, although it took several years for firms to fully adjust. I also argue that although high correlation over time of R&D spending at the firm level makes it difficult to estimate long run effects precisely, the same high correlation makes it probable that these effects are large.

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  • Bronwyn Hall, 1992. "R&D Tax Policy During the Eighties: Success or Failure?," NBER Working Papers 4240, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4240
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    Cited by:

    1. Dominique Guellec & Bruno Van Pottelsberghe De La Potterie, 2003. "The impact of public R&D expenditure on business R&D," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 12(3), pages 225-243.
    2. Hernandez, Gustavo Adolfo & Soto, Carolina & Prada, Sergio & Ramirez, Juan Mauricio, 2000. "Exenciones tributarias: Costo fiscal y análisis de incidencia [Tax exemptions: fiscal cost and incidence analysis]," MPRA Paper 14546, University Library of Munich, Germany.
    3. Saidani, Wien & Msolli, Badreddine & Ajina, Aymen, 2017. "Research and development investment and financing constraints: The case of Japan," Research in International Business and Finance, Elsevier, vol. 42(C), pages 1336-1342.
    4. Dominique Guellec & Isabelle Kabla, 1994. "Le brevet : un instrument d'appropriation des innovations technologiques," Économie et Statistique, Programme National Persée, vol. 275(1), pages 83-94.
    5. Lokshin, Boris & Mohnen, Pierre, 2007. "Measuring the Effectiveness of R&D Tax Credits in the Netherlands," MERIT Working Papers 2007-025, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    6. Russell Thomson & Paul Jensen, 2013. "The Effects of Government Subsidies on Business R&D Employment: Evidence From Oecd Countries," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(2), pages 281-310, June.
    7. Russell Thomson, 2010. "Tax Policy and R&D Investment by Australian Firms," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 260-280, June.
    8. Mamuneas, Theofanis P. & Ishaq Nadiri, M., 1996. "Public R&D policies and cost behavior of the US manufacturing industries," Journal of Public Economics, Elsevier, vol. 63(1), pages 57-81, December.
    9. Robert Atkinson, 2007. "Expanding the R&E tax credit to drive innovation, competitiveness and prosperity," The Journal of Technology Transfer, Springer, vol. 32(6), pages 617-628, December.
    10. Liu, Runjuan & Rosell, Carlos, 2013. "Import competition, multi-product firms, and basic innovation," Journal of International Economics, Elsevier, vol. 91(2), pages 220-234.
    11. Estelle P. Dauchy, 2013. "The Efficiency Cost of Asset Taxation in the U.S. after Accounting for Intangible Assets," Working Papers w0199, Center for Economic and Financial Research (CEFIR).
    12. Gernot Hutschenreiter, 2002. "Steuerliche Förderung von Forschung und Entwicklung," WIFO Monatsberichte (monthly reports), WIFO, vol. 75(2), pages 121-131, February.
    13. Ladron-de-Guevara, Antonio & Ortigueira, Salvador & Santos, Manuel S., 1997. "Equilibrium dynamics in two-sector models of endogenous growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 115-143, January.
    14. Mackie, James B. III, 2002. "Unfinished Business of the 1986 Tax Reform Act: An Effective Tax Rate Analysis of Current Issues in theTaxation of Capital Income," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(2), pages 293-337, June.
    15. Mamuneas, Theofanis P., 1999. "Spillovers from publicly financed R&D capital in high-tech industries," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 215-239, February.
    16. Ana Paula Macedo De Avellar, 2014. "Evaluating The Impacts Of Innovationpolicy: Evidences From Brazil," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 145, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    17. Holt, Jared & Skali, Ahmed & Thomson, Russell, 2021. "The additionality of R&D tax policy: Quasi-experimental evidence," Technovation, Elsevier, vol. 107(C).
    18. Mackie, James B. III, 2002. "Unfinished Business of the 1986 Tax Reform Act: An Effective Tax Rate Analysis of Current Issues in theTaxation of Capital Income," National Tax Journal, National Tax Association, vol. 55(N. 2), pages 293-337, June.
    19. Jorge Niosi, 2010. "Building National and Regional Innovation Systems," Books, Edward Elgar Publishing, number 14006.
    20. Russell Thomson, 2013. "The Effectiveness of R&D Tax Credits: Cross-Industry Evidence," Melbourne Institute Working Paper Series wp2013n18, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    21. D Kaplan, 2001. "Rethinking Government Support For Business Sector R&D In South Africa: The Case For Tax Incentives," South African Journal of Economics, Economic Society of South Africa, vol. 69(1), pages 72-92, March.

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