TY  - JOUR
AU  - Hines,James R., Jr.
TI  - On the Sensitivity of R&D to Delicate Tax Changes: The Behavior of U.S. Multinationals in the 1980s
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3930
PY  - 1993
Y2  - September 1993
UR  - http://www.nber.org/papers/w3930
L1  - http://www.nber.org/papers/w3930.pdf
N1  - Author contact info:
James R. Hines
Department of Economics
University of Michigan
343 Lorch Hall
611 Tappan Street
Ann Arbor, MI  48109-1220
Tel: 734/764-2320
Fax: 734/764-2769
E-Mail: jrhines@umich.edu
M1  - published as James R. Hines, Jr., R. Glen Hubbard, Joel Slemrod. "On the Sensitivity of R&D to Delicate Tax Changes: The Behavior of U. S. Multinationals in the 1980s ," in Alberto Giovannini, R. Glen Hubbard, and Joel Slemrod, eds., "Studies in International Taxation" University of Chicago Press (1993)

M2  - featured in NBER digest on 1992-02-01
AB  - 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.
ER  -