Taxation and R&D: An Investigation of the Push and Pull Effects

Abstract

We in vestigate the extent of the impact that direct tax subsidies (the “push” effect) and the competitiveness of the production tax system (the “pull” effect) have on research and development. A panel dataset of nine countries over nineteen years is used to estimate a dynamic fixed effects model of aggregate R&D. Both effects are significant and economically important. The short-run elasticity of R&D with respect to the push effect ranges from –0.12 to –0.22, while the long-run elasticity ranges from –0.46 to –0.83; the short-run elasticity of the pull effect ranges from –0.15 to –0.28, while the long-run elasticity ranges from –0.58 to –0.83.