Labor tax and relative cost of R&D

Monika Lewandowska-Kalina and Lech Kalina
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Monika Lewandowska-Kalina: Warsaw School of Economics
Lech Kalina: Warsaw School of Economics

Applied Econometrics Papers, 2014, vol. 1, issue 1, 1-19

Abstract: This paper examines the impact of taxation of labor on investment in Research and Development. Given the central role of R&D as an en- gine of business expansion and economy growth, issue of estimating the barriers to R&D is a vital one, both from theoretical and practical point of view. We analyse the impact of labor taxation on decision to invest in R&D. We show that labor taxation changes relative costs of R&D investment versus fixed capital formation. It leads to allocation of investment more towards physical capital formation than R&D invest- ment. In the empirical part of the paper, using panel and cross-section of countries, we shed light on the impact of taxation of labor on R&D. Our estimates indicate that labor tax has a significant adverse impact on R&D investment, and its negative impact is larger for R&D than for physical capital.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:wse:journl:v:1:y:2014:i:1:p:1-19

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