A DYNAMIC ANALYSIS OF THE RESEARCH AND EXPERIMENTATION CREDIT

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Abstract
This study uses tax return data to investigate the incentive effects of the incremental research and experimentation credit. We use a dynamic model that takes into account unused tax benefits to evaluate the marginal incentives effects of the credit. We estimate that the average effective rate of credit in 1981 was less than one-tenth of the statutory credit rate. We find that the incremental structure of the credit gives rise to effective credit rates that may be zero or negative.

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