Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/69739
Authors: 
Ernst, Christof
Richter, Katharina
Riedel, Nadine
Year of Publication: 
2013
Series/Report no.: 
FZID Discussion Papers 66-2013
Abstract: 
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.
Subjects: 
corporate taxation
research and development
micro data
JEL: 
H3
H7
J5
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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