R&D Tax Policy And Firm Dynamics

Topics:
Organization
Tags:
Business Operations,
Finance,
Financial Planning,
Free Trade,
R&D,
Research & Development,
Tax Credit,
Taxes,
University Of Iowa
Source:
University of Iowa

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Overview: Empirical studies have documented the cost effectiveness of the R&D (Research & Development) tax credit policy implemented in the US since 1981. However those studies fail to take into account the effect of R&D decisions on firms' evolution over time. A dynamic general equilibrium model of R&D is constructed with externalities where, a firm's dynamics are affected by its own R&D decisions and by the R&D investment of other firms. The model is calibrated to pre-1981 US manufacturing data. The cost effectiveness result of empirical studies was confirmed. However, it is found that at its current 20% rate, the tax policy is welfare reducing, and that the optimal tax credit rate should be 3.8 %.

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Format: PDF | Size: 263KB | Date: Feb 2007 | Pages: 27

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