A BEJEAP Topics article.

Abstract

California’s changes in R&D tax credit rates on biopharmaceutical and software firms’ research investment during 1994-1996 and 1997-1999 is compared using two approaches. Consistent with the federal research tax credit literature, the difference-in-differences analysis provides some evidence of increased R&D expenditure in response to research tax credit rate increases. In contrast, the estimated tax price elasticities obtained by computing and testing the tax prices for in-house research are dramatically higher than the existing literature’s estimates near unity. Possible explanations include firms’ greater sensitivity to state-level policy, industry factors, sample characteristics and measurement error. For contract research with universities and other not-for-profit research organizations, the findings suggest a tax credit may not be the optimal policy tool. Finally, state-level R&D incentives do not appear to have equal incentive effects across industries.

Submitted: February 6, 2004 · Accepted: July 15, 2005 · Published: September 21, 2005

Originally published in Topics in Economic Analysis & Policy.

Recommended Citation

Paff, Lolita A. (2005) "State-Level R&D Tax Credits: A Firm-Level Analysis ," Topics in Economic Analysis & Policy: Vol. 5 : Iss. 1, Article 17.
Available at: http://www.bepress.com/bejeap/topics/vol5/iss1/art17