How has tax affected the changing cost of R&D? Evidence from eight countries

This paper describes the evolution of the tax treatment of investment in R&D in Australia, Canada, France, Great Britain, Germany, Italy, Japan and the USA between 1979 and 1994. Estimates of the cost of R&D capital are provided and the methodology used is contrasted with other ones used in the literature. Four …ndings are highlighted. First, there appear to be substantial differences in the cost of R&D capital across countries at any given point in time. Secondly, there has been a general trend towards more generous tax treatment of R&D, although some countries have moved much more rapidly than others. Thirdly, there is an increasing diversity in the cost of R&D capital between countries, a pattern that is in stark contrast to the convergence in the tax treatment of physical capital. Finally, simulations of the impact of four tax systems on a sample of R&D performing firms illustrates the within-country heterogeneity in the impact of R&D tax credits.