Abstract:
This paper empirically investigate whether the variation in the rate of state corporate taxes across the US economy has any explanatory power in predicting the variation in research and development expenditure across firms. The paper uses an identi fication strategy that exploits variation in corporate income tax rates across U.S. states and tries to understand how it impacts fi rm level R&D activity by using a difference-in-difference (DID) set up. Compustat data for all U.S. firms over the period starting from 1994 to 2014 are used to test this hypothesis. The results suggest that corporate tax cuts does not affect R&D expenditures among all publicly traded firms in the U.S. while an increase in the tax rate leads to a decreases in R&D spending.
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