Profit taxation, R&D spending, and innovation


Lichter, Andreas ; Löffler, Max ; Isphording, Ingo Eduard ; Nguyen, Thu-Van ; Poege, Felix ; Siegloch, Sebastian


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URL: https://madoc.bib.uni-mannheim.de/61097
URN: urn:nbn:de:bsz:180-madoc-610979
Document Type: Working paper
Year of publication: 2021
The title of a journal, publication series: ZEW Discussion Papers
Volume: 21-080
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Wirtschaftspolitik u. Politische Ökonomie (Juniorprofessur) (Siegloch 2014-2018)
Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
School of Law and Economics > VWL, insbes. Ökonometrie (Frölich)
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: H25 , H32 , O31 , O32,
Keywords (English): corporate taxation, firms , R&D , innovation , patents
Abstract: We study how profit taxation affects plants’ R&D spending and innovation activities. Relying on geocoded survey panel data which approximately covers the universe of R&D-active plants in Germany, we exploit around 7,300 changes in the municipal business tax rate over the period 1987–2013 for identification. Applying event study models, we find a negative and statistically significant effect of an increase in profit taxation on plants’ R&D spending with an implied long-run elasticity of −1.25. Reductions in R&D are particularly strong among more credit-constrained plants. In contrast, homogeneity of effects across the plant size distribution questions policy makers common practice to link targeted R&D tax incentives to plant size. We further find lagged negative effects on the (citation-weighted) number of filed patents.

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