 A Model of R&D Tax IncentivesNo 597, Boston College Working Papers in Economics from Boston College Department of Economics Abstract: This paper examines R&D tax incentives in oligopolistic markets. We characterize the conditions under which tax incentives reach the socially desirable level of firm-financed R&D spending. The outcome of the market depends not only on the level of technological spillover in the industry but also on the degree of strategic interaction between the firms. One major result emerges from the model: The socially desirable level of R&D investment is not necessarily reached by subsidizing R&D. When the sector spillover is sufficiently low, the government might want to tax R&D investments, and this result does not necessarily arise because firms are overinvesting in R&D. There are also cases in which an R&D tax is desirable even though firms are underinvesting in R&D compared with the first-best optimum. In practice, this theoretical finding calls for a lower sales tax combined with an R&D subsidy in oligopolistic industries with high technological spillovers, and a lower sales tax combined with an R&D tax in oligopolistic industries with low technological spillovers. Keywords: R&D tax incentive; social policy, oligopoly, spillover (search for similar items in EconPapers) Published, International Tax and Public Finance, 16, 797-821, 2009. Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:597 Access Statistics for this paper More papers in Boston College Working Papers in Economics from Boston College Department of Economics Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA. Contact information at EDIRC. |
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