Ernst, Christof, Richter, Katharina and Riedel, Nadine (2014) Corporate taxation and the quality of research and development. International Tax and Public Finance, 21 (4). pp. 694-719.
This paper examines the impact of tax incentives on corporate research and development (R&D) activity. R&D tax incentives are commonly provided as special tax allowances or tax credits. In recent years, several countries also reduced their income tax rates on R&D output with the purpose to foster R&D activity. Previous papers have shown that all three tax instruments are effective in raising the quantity of R&D related activity. We in turn assess the impact of corporate tax incentives on the quality of R&D projects, i.e., their innovativeness and earnings potential. Using rich data on corporate patent applications to the European patent office, we find that a low tax rate on patent income raises the average profitability and innovation level of the projects undertaken in a country. The effect is statistically significant and economically relevant and prevails in a number of sensitivity checks. Generous R&D tax credits and tax allowances are in contrast found to exert a negative impact on project quality.
|Centre:||Oxford University Centre for Business Taxation|
|Date Deposited:||12 Jun 2014 15:04|
|Last Modified:||23 Oct 2015 14:08|
Actions (login required)