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Warusawitharana, Missaka
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[Journal:] Quantitative Economics [ISSN:] 1759-7331 [Volume:] 6 [Year:] 2015 [Issue:] 2 [Pages:] 531-565
This study presents a model in which firms invest in research and development (R&D) to generate innovations that increase their underlying profitability and invest in physical capital to produce output. Estimating the model using a method of moments approach reveals that R&D expenditures contribute significantly to profits and firm value. The model also captures variation in R&D intensity, profits, and firm value across R&D-intensive industries. Counterfactual experiments suggest that changes in the distribution of firms in the economy may, over the long run, mitigate tax policy changes designed to encourage R&D expenditures.
Research and development
structural estimation
firm dynamics
policy evaluation
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