International Journal of Economics, Finance and Management Sciences
Volume 7, Issue 2, April 2019, Pages: 37-44
Received: Feb. 19, 2019;
Accepted: Mar. 30, 2019;
Published: Apr. 18, 2019
Views 159 Downloads 77
Valeria Bucci, Department of Economics, University of Salento, Lecce, Italy and Sose SpA, Rome, Italy
This paper analyses the determinants of business R&D choices. In particular, it provides new empirical evidence on the effectiveness of fiscal policies aimed at driving companies to invest in R&D activity. By computing two very accurate proxies for firm-specific tax savings achievable when investing in R&D, and by exploiting exogenous changes in fiscal legislation in Italy, this study investigates if fiscal considerations affect companies’ choice to invest in R&D and how much to spend in such activity. The empirical analysis is based on an unbalanced panel data set composed of 163 Italian companies, covering the years 2004-2010. A two-step approach has been implemented, by combining a probit and a tobit estimation model. The results deliver strong empirical evidence that fiscal incentives significantly affect business R&D choices, by one side, increasing companies’ likelihood to invest in R&D, and, by the other, fostering companies’ R&D expenditure.
The Effect of Fiscal Incentives on Business R&D, International Journal of Economics, Finance and Management Sciences.
Vol. 7, No. 2,
2019, pp. 37-44.
Romer, P. M. (1990). Endogenous Technological Change. Journal of Political Economy 98(5), S71–S102.
Grossman, G. M. and E. Helpman (1991). “Innovation and Growth in the Global Economy”. Cambridge, MA: MIT Press.
Arrow, K. J. “Economic welfare and the allocation of resources for invention”, in The Rate and Direction of Inventive Activity, R. R. Nelson, Eds. New York: Princeton Univ. Press, 1962.
Berger, P. G. (1993). Explicit and implicit tax effects of the R&D tax credit. Journal of Accounting Research 31(2), 131–171.
Hall, B. H. (2002). The financing of research and development. Oxford Review of Economic Policy 18(1), 35-51.
Griffith, R., D. Sandler and J. Van Reenen (1996). Tax Incentives for R&D. Fiscal Studies 16(2), 21-44.
OECD (2010). “R&D tax incentives: rationale, design, evaluation”. OECD publishing.
OECD (2013). “Science, Technology and Industry Scoreboard 2013”. OECD publishing.
Hu, Y., W. Ju and K. Gao (2019). The review impact of the tax policies and fiscal policies on R&D at the firm level. International Journal of Economics, Finance and Management Sciences 7(1), 1-5.
Binelli, C. and A. Maffioli (2007). A Micro‐econometric Analysis of Public Support to Private R&D in Argentina. International Review of Applied Economics 21(3), 339-359.
Baghana, R. and P. Mohnen (2009). Effectiveness of R&D tax incentives in small and large enterprises: analysis of firm data in Québec. Small Business Economics 33(1), 91-107.
Hall, B. H. and J. Van Reenen (2000). How effective are fiscal incentives for R&D? A review of the evidence. Research Policy 29, 449–469.
Mairesse, J. and P. Mohnen (2010). Using Innovation Surveys for Econometric Analysis. Handbook of the Economics of Innovation 2, 1129-1155.
Hall, B. H. (1993). R&D tax policy during the eighties: success or failure? Tax Policy and the Economy 7, 1-36.
Hall, B. H., F. Lotti and J. Mairesse (2009). Innovation and productivity in SMEs: Empirical evidence for Italy. Small Business Economics 33, 13-33.
Cerulli, G. and B. Potì (2012). Evaluating the robustness of the effect of public subsidies on firms’ R&D: An application to Italy. Journal of Applied Economics 15(2), 287-320.
Bronzini, R. and P. Paolo (2016). The impact of R&D subsidies on firm innovation. Research Policy 45(2), 442-457.
Arachi, G. and V. Bucci (2019). The role of taxes in earnings management: evidence from writedowns of long-term equity investments. Finanzarchiv, forthcoming.
Graham, J. R. (1996). Debt and the marginal tax rate. Journal of Financial Economics, 41(1), 41-73.
Graham, J. R. (1996). Proxies for the corporate marginal tax rate. Journal of Financial Economics 42(2), 187–221.
Graham, J. R. (1999). Do personal taxes affect corporate ﬁnancing decisions? Journal of Public Economics, 73(2), 147-185.
Shevlin, T. (1990). Estimating corporate marginal tax rates with asymmetric tax treatment of gains and losses. The Journal of the American Taxation Association 11(2), 51-67.
Almus, M. and D. Czarnitzki (2003). The Effects of Public R&D Subsidies on Firm’s Innovation Activities: The Case of Eastern Germany. Journal of Business and Economic Statistics 21 (2), 226-236.
Tobin, J. (1958). Estimation of the relationship for limited dependent variables. Econometrica 26(1), 24-36.
Maddala, G. S. (1987). Limited dependent variables using panel data. The Journal of Human Resources 22 (3), 307-338.
Schumpeter, J. (1942). “Capitalism, socialism and democracy”. New York: Harper and Row.
Galbraith, J. K. (1952). “American Capitalism, the Concept of Countervailing Power”. Boston: Houghton Mifflin Company.
Clausen, T. H. (2009). Do subsidies have positive impacts on R&D and innovation activities at the firm level? Structural Change and Economic Dynamics 20(4), 239–253.
Bronzini, R. and E. Iachini (2011). Are Incentives for R&D Effective? Evidence from a Regression Discontinuity Approach. Banca d’Italia Working paper no. 791.
Busom, I (2000). An Empirical Evaluation of the Effects of R&D Subsidies. Economics of Innovation and New Technology 9(2), 111-148.
Hussinger, K. (2008). R&D and subsidies at the firm level: An application of parametric and semiparametric two-step selection models. Journal of Applied Econometrics 23(6), 729-747.
Aghion, P. and P. Howitt, Endogenous Growth Theory. Cambridge, MA: MIT Press, 1998.
Blundell, R., R. Griffith and J. van Reenen (1999). Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms. Review of Economic Studies 66(3), 529-554
González, X., J. Jaumandreu and C. Pazó (2005). Barriers to Innovation and Subsidy Effectiveness. Rand Journal of Economics 36(4), 930-950.
Takalo, T., T. Tanayama and O. Toivanen (2013). Estimating the benefits of targeted R&D subsidies. The Review of Economics and Statistics 95(1), 255-272.
Wallsten, S. (2000). The effects of government – industry R&D programs on private R&D: the case of the SBIR Program. RAND Journal of Economics 31(1), 82-100.
Blanes, J. W. and I. Busom (2004). Who participates in R&D subsidy programs? The case of Spanish manufacturing firms. Research Policy 33(10), 1459-1476.