Profit Taxation, R&D Spending, and Innovation

Andreas Lichter, Max Löffler, Ingo E. Isphording, Thu- Van Nguyen, Felix Poege and Sebastian Siegloch

American Economic Journal: Economic Policy, 2025, vol. 17, issue 1, 432-63

Abstract: We study how profit taxes affect establishments' R&D activities. Relying on detailed panel data of R&D-active firms in Germany over two decades, we exploit identifying variation induced by more than 10,000 municipal changes in the local business tax rate and federal tax reforms with locally varying effects. Using event-study techniques, we find a sizable, negative effect of profit taxes on establishments' total R&D spending and patents filed. Zooming into the innovation production process, we uncover substantial heterogeneity in the impact of profit taxation for various R&D input factors, among firm characteristics, and for different types of research projects.

JEL-codes: D22 G32 H25 H32 H71 O31 O34 (search for similar items in EconPapers)
Date: 2025
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Related works:
Working Paper: Profit Taxation, R&D Spending, and Innovation (2022)
Working Paper: Profit Taxation, R&D Spending, and Innovation (2021)
Working Paper: Profit Taxation, R&D Spending, and Innovation (2021)
Working Paper: Profit taxation, R&D spending, and innovation (2021)
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DOI: 10.1257/pol.20220580

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