Profit Taxation, R&D Spending, and Innovation

Andreas Lichter (), Max Löffler, Ingo E. Isphording (), Thu-Van Nguyen (), Felix Poege () and Sebastian Siegloch
Additional contact information
Andreas Lichter: Technical University Dortmund
Ingo E. Isphording: IZA
Thu-Van Nguyen: Stifterverband Essen
Felix Poege: Bocconi University

No 14830, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study how profit taxation affects plants' R&D spending and innovation activities. Relying on geocoded survey panel data which approximately covers the universe of R&D-active plants in Germany, we exploit around 7,300 changes in the municipal business tax rate over the period 1987–2013 for identification. Applying event study models, we find a negative and statistically significant effect of an increase in profit taxation on plants' R&D spending with an implied long-run elasticity of −1.25. Reductions in R&D are particularly strong among more credit-constrained plants. In contrast, homogeneity of effects across the plant size distribution questions policy makers common practice to link targeted R&D tax incentives to plant size. We further find lagged negative effects on the (citation-weighted) number of filed patents.

Keywords: corporate taxation; firms; R&D; innovation; patents (search for similar items in EconPapers)
JEL-codes: H25 H32 O31 O32 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2021-11
New Economics Papers: this item is included in nep-acc, nep-ent, nep-eur, nep-ino, nep-pbe, nep-sbm and nep-tid
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Published - revised version published in: American Economic Journal: Economic Policy, 2025, 17 (1), 432- 463

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Related works:
Journal Article: Profit Taxation, R&D Spending, and Innovation (2025)
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)
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