Corporate taxation and the quality of research and development

Arbeitspapier

This paper examines the impact of tax incentives on corporate research and development (R&D) activity. Traditionally, R&D tax incentives have been provided in the form of special tax allowances and tax credits. In recent years, several countries moreover reduced their income tax rates on R&D output. Previous papers have shown that all three tax instruments are effective in raising the quantity of R&D related activity. We provide evidence that, beyond this quantity effect, corporate taxation also distorts the quality of R&D projects, i.e. their innovativeness and revenue potential. Using rich data on corporate patent applications to the European patent office, we find that a low tax rate on patent income is instrumental in attracting innovative projects with a high earnings potential and innovation level. The effect is statistically significant and economically relevant and prevails in a number of sensitivity checks. R&D tax credits and tax allowances are in turn not found to exert a statistically significant impact on project quality.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 4139

Classification and Topics

• Classification: Wirtschaft ; Fiscal Policies and Behavior of Economic Agents: General ; State and Local Government; Intergovernmental Relations: General ; Labor-Management Relations, Trade Unions, and Collective Bargaining: General
• Subject: corporate taxation ; research and development ; micro data

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ernst, Christof ; Richter, Katharina ; Riedel, Nadine
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2013

Further information

• Handle: http://hdl.handle.net/10419/70269
• Last update: 10.03.2025, 11:42 AM CET