R&D Tax Policy During the Eighties: Success or Failure?

Bronwyn Hall

NBER Working Paper No. 4240 (Also Reprint No. r1872)
Issued in December 1992
NBER Program(s):Public Economics, Productivity, Innovation, and Entrepreneurship

R&D Tax policy in the United States during the nineteen-eighties is evaluated. with particular emphasis placed on quantifying the impact of the R&D tax credit on the R&D investment of manufacturing firms. Using publicly available data on R&D spending at the firm level, I estimate an average price elasticity for R&D spending which is in the neighborhood of unity in the short run. Although the effective credit rate is small (less than five percent until 1990), this relatively strong price response means that the amount of additional R&D spending thus induced was greater than the cost in foregone tax revenue. The recent evolution of features of the U.S. corporate tax system which affect R&D is also reviewed and my results are compared with those of previous researchers. The conclusion is that R&D tax credit seems to have had the intended effect, although it took several years for firms to fully adjust. I also argue that although high correlation over time of R&D spending at the firm level makes it difficult to estimate long run effects precisely, the same high correlation makes it probable that these effects are large.

download in pdf format
   (1468 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w4240

Published: Tax Policy and the Economy, Edited by James Poterba Volume 7, pp. 1-35, (MIT Press, Cambridge), May 1993

Users who downloaded this paper also downloaded* these:
Hall and Van Reenen w7098 How Effective are Fiscal Incentives for R&D? A New Review of the Evidence
Hall R&D Tax Policy During the 1980s: Success or Failure?
Hines w3930 On the Sensitivity of R&D to Delicate Tax Changes: The Behavior of U.S. Multinationals in the 1980s
Hines No Place Like Home: Tax Incentives and the Location of R&D by American Multinationals
Hall, Mairesse, and Mohnen w15622 Measuring the Returns to R&D
NBER Videos

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

Contact Us