Higher Profit Taxes Reduce Firms' R&D Activities

Siegloch, Sebastian; Poege, Felix; Nguyen, Thu-Van; Löffler, Max; Lichter, Andreas; Isphording, Ingo E.

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Higher Profit Taxes Reduce Firms' R&D Activities

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Poege, Felix
MPI for Innovation and Competition, Max Planck Society;

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Siegloch, S., Poege, F., Nguyen, T.-V., Löffler, M., Lichter, A., & Isphording, I. E. (2021). Higher Profit Taxes Reduce Firms' R&D Activities. Vox EU Column.

Cite as: https://hdl.handle.net/21.11116/0000-000E-3FE4-B

Abstract

Studies have shown that targeted R&D tax incentives – such as tax credits for R&D spending – induce firms to conduct more R&D. However, little is known about the effects of general profit taxes on firm-level R&D spending and innovation output. This column presents evidence from Germany that points to sizeable negative effects of increasing profit taxes on firms’ R&D spending and patents. However, slashing business tax rates may not be the most efficient policy instrument to spur innovation altogether.