NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

On the Sensitivity of R&D to Delicate Tax Changes: The Behavior of U.S. Multinationals in the 1980s

James R. Hines, Jr.

NBER Working Paper No. 3930 (Also Reprint No. r1808)
Issued in December 1991
NBER Program(s):   PE

This paper explores the effect of recent U.S. tax changes on the R&D activities of American multinational corporations. Prior to 1986, U.S. multinational firms could deduct all of their domestic R&D expenses against their U.S. income for tax purposes. After 1986, some firms could take only a partial deduction (while other multinationals continued to receive the benefits of 100% deductibility). By comparing the behavior of firms in these two situations (after 1986), it is possible to estimate the responsiveness of R&D to changes in after-tax prices. The results indicate that the price elasticity of demand for R&D lies between -1.2 and -1.6, thereby implying considerably more price sensitivity than is typically assumed to be true of R&D. Based on these results, the 1986 tax change appears to have been responsible for a reduction of between $1.4 billion and $2.2 billion in annual R&D in the United States, in return for $1.2 billion in additional annual tax revenue.

download in pdf format
   (686 K)

download in djvu format
   (406 K)

email paper

This paper is available as PDF (686 K) or DjVu (406 K) (Download viewer) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w3930

Published:

Users who downloaded this paper also downloaded these:
Hines w4932 Taxes, Technology Transfer, and the R&D Activities of Multinational Firms
Hines No Place Like Home: Tax Incentives and the Location of R&D by American Multinationals
Hines, Hubbard, and Slemrod On the Sensitivity of R&D to Delicate Tax Changes: The Behavior of U. S. Multinationals in the 1980s
Hall w4240 R&D Tax Policy During the Eighties: Success or Failure?
Hines w4574 No Place Like Home: Tax Incentives and the Location of R&D by American Multinationals
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us