Structural Change in the Research and Experimentation Tax Credit: Success or Failure?

Posted: 17 May 2012

See all articles by Sanjay Gupta

Sanjay Gupta

Michigan State University - Eli Broad College of Business

Yuhchang Hwang

Arizona State University (ASU) - School of Accountancy; China Europe International Business School

Andrew Schmidt

North Carolina State University

Date Written: June 1, 2011

Abstract

This study examines the availability and incentive effects of the Research and Experimentation tax credit following structural changes in the computation of the credit enacted in the Omnibus Budget Reconciliation Act of 1989 (OBRA89). We find that overall firm eligibility declined after OBRA89, but eligibility increased for firms in high-tech industries, relative to firms in other industries. Dynamic panel regressions indicate that median research and development spending intensity of high-tech (other) firms increased by approximately 15.9 (9.4) percent from 1986-1989 to 1990-1994. For firms that qualified for the credit, our estimates imply approximately $2.08 of additional research and development spending per dollar of revenue forgone.

Keywords: research and development, tax credits, research and experimentation tax credit, tax incentives

JEL Classification: H25, H32, O31, O38

Suggested Citation

Gupta, Sanjay and Hwang, Yuhchang and Schmidt, Andrew P., Structural Change in the Research and Experimentation Tax Credit: Success or Failure? (June 1, 2011). National Tax Journal, Vol. 64, pp, 285-322, June 2011. Available at SSRN: https://ssrn.com/abstract=2061786

Sanjay Gupta

Michigan State University - Eli Broad College of Business ( email )

632 Bogue Street, 520 BCC
East Lansing, MI 48824
United States
517-432-6488 (Phone)

HOME PAGE: http://www.broad.msu.edu/

Yuhchang Hwang

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States

China Europe International Business School ( email )

Shanghai-Hongfeng Road
Shanghai 201206
Shanghai 201206
China

Andrew P. Schmidt (Contact Author)

North Carolina State University ( email )

Raleigh, NC 27695-8113
United States

HOME PAGE: http://https://poole.ncsu.edu/people/apschmid/

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