Tax policy and the financing of innovation

Campodonico, Luis A. Bryce; Bonfatti, Roberto; Pisano, Luigi

doi:10.1016/j.jpubeco.2015.12.010

Cited by 17 publications

(10 citation statements)

References 10 publications

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“…To alleviate this fiscal pressure, local governments may be prompted to strengthen their tax collection efforts, which will increase the tax burden of non-urban investment corporations. This move will, in turn, crowd out corporate R&D investment [13][14][15][16]. Moreover, tax burden reduces the corporates' cash flow, worsens the corporates' financial constraints, and therefore, reduces, the investment level in innovative activities [48,49].…”

Section: Theoretical Hypothesismentioning

confidence: 99%

“…In this study, we explored three channels by which LGD affects corporate R&D investment. That is, (1) the LGD will consume the regional fiscal resources available to enterprises, which would reduce corporate R&D investment [11,12]; (2) the LGD will strengthen the local government collection efforts on the corporation, which would reduce corporate R&D investment [13][14][15][16]; and (3) the LGD will consume regional credit resources available to enterprises, which would reduce corporate R&D investment [17][18][19][20].…”

Section: Introductionmentioning

confidence: 99%

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Crowding in or crowding out? How local government debt influences corporate innovation for China

Feng

et al. 2021

PLoS ONE

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The pressure upon local governments to redeem their debt could affect government fiscal ability. It could consequently affect their fiscal policies on corporations, which might distort corporate innovation. Based on the data of Chinese Shanghai and Shenzhen A-share listed companies and the local government implicit short-term debt financed by local government financing vehicles (LGFVs) in 31 provinces, this paper shows that local government debt (LGD) negatively affects corporate R&D investment in China, thereby suggesting a strong crowding-out effect. The crowding-out effect is more pronounced when the firm is a non-state-owned enterprise (NSOE), the firm’s size is small, the firm’s age is young, or the firm is in the lower market competition. This paper provide evidence by interacting the terms that local government actions, such as consumption of fiscal resources, strengthening tax collection efforts, or consumption of credit resources, might partially account for the crowding-out effect. This study illustrates the innovation costs of local government debt.

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Section: Theoretical Hypothesismentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Crowding in or crowding out? How local government debt influences corporate innovation for China

Feng

et al. 2021

PLoS ONE

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“…In [22], the authors showed that direct government financing is responsible for most basic research. At the same time, businesses also play an essential role in basic research and a dominant role in more applied research.…”

Section: Literature Reviewmentioning

confidence: 99%

Taxes, R&D Expenditures, and Open Innovation: Analyzing OECD Countries

Balsalobre‐Lorente

Zeraibi

Shehzad

et al. 2021

Journal of Open Innovation: Technology, Market, and Complexity

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This paper aims to measure the effect of tax contributions in promoting innovation while highlighting the role of corporate taxes in governance quality in nations within and outside the Organization for Economic Co-operation and Development (OECD). The study applied the generalized method of moments (GMM) framework and found that good governance invariably increases the Innovation Index. Moreover, research and development expenditures revealed a positive association with the Innovation Index. However, corporate taxes and taxes paid by the business sector harm the Innovation Index. Following the investigation, we recommended that policymakers should plan well to balance the costs of innovation and tax incentives, to avoid stimulating unproductive innovations or affecting operating budgets.

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“…Bryce Campodonico et al . () and Plehn‐Dujowich () develop Schumpeterian growth models with adverse selection in financing, but use them to study optimal tax policy and to quantify the reduction in the rate of growth stemming from the presence of financial frictions, respectively. Finally, Ates and Saffie () study a general equilibrium endogenous growth model in which financial intermediaries screen the quality of projects from a heterogeneous population of entrepreneurs.…”

Section: Introductionmentioning

confidence: 99%

Credit Constraints and the Inverted‐U Relationship Between Competition and Innovation

Bonfatti

Pisano²

2019

Economica

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Empirical studies have uncovered an inverted‐U relationship between product‐market competition and innovation. This is inconsistent with the original Schumpeterian model, where greater competition always reduces the profitability of innovation and thus the incentives to innovate. We show that the model can predict the inverted‐U if the innovators’ talent is heterogeneous and asymmetrically observable. When competition is low and profitability is high, talented innovators are credit‐constrained, since untalented innovators are eager to mimic them. As competition increases and profitability decreases, untalented innovators become less eager to mimic, and talented innovators can invest more. This generates the increasing part of the relationship. When competition is high and profitability is low, credit constraints disappear, and the relationship is decreasing. Our theory generates additional specific predictions that are well borne out by the existing evidence.

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Tax policy and the financing of innovation

Cited by 17 publications

References 10 publications

Crowding in or crowding out? How local government debt influences corporate innovation for China

Crowding in or crowding out? How local government debt influences corporate innovation for China

Taxes, R&D Expenditures, and Open Innovation: Analyzing OECD Countries

Credit Constraints and the Inverted‐U Relationship Between Competition and Innovation

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