Tax Incentives for Economic Growth: Capital Investment or Research

Abstract

This paper investigates whether tax incentives can effectively promote capital investment and research spending simultaneously. Tax history provides the experimental setting to compare the influences of these tax initiatives. Analysis shows that firms respond to the research tax incentives by increasing R&D spending but do not significantly react to the policies promoting greater capital investment. More importantly, the results indicate that the tax incentives are negatively related to other types of investment with reduced R&D spending in the presence of incentives for capital investment and capital expenditures decreasing when research is encouraged by tax policy.

Citation

Manly, T.S., Thomas, D.W. and Schulman, C.T. (2006), "Tax Incentives for Economic Growth: Capital Investment or Research", Luttman, S. (Ed.) Advances in Taxation (Advances in Taxation, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 95-120. https://doi.org/10.1016/S1058-7497(06)17004-0