The effectiveness of the R&D tax credit: Evidence from the alternative simplified credit

Andrew R. Finley, Stephen J. Lusch, Kirsten A. Cook

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

We examine the influence of the Alternative Simplified Credit (ASC) on firms’ research and development (R&D) spending. The ASC remedies a perceived flaw with the previous R&D tax credit regime that excluded firms with high R&D intensities during their fixed-base periods and/or high sales in the previous four years from claiming a credit. We document a large increase in R&D tax credit eligibility following the enactment of the ASC, and find that its effect on R&D spending was positive relative to firms not utilizing this new credit-calculation option. Specifically, we estimate that the ASC induced an additional $2.26 of R&D spending for every dollar of forgone tax revenue. These results provide evidence that the ASC has spurred R&D investment in a setting where firms have a choice between two credit-calculation methods.

Original languageEnglish
Pages (from-to)157-181
Number of pages25
JournalJournal of the American Taxation Association
Volume37
Issue number1
DOIs
StatePublished - Mar 1 2015

Keywords

  • Research and development
  • Tax credits
  • Tax incentives

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