Effect of Tax Policy on Returns to R and D in the Pharmaceutical Industry: AMethodological Review

摘要

Previous studies by public finance economists have generally classified thepharmaceutical industry as high tech and focused on the tax treatment of patents and new technical knowledge created from within a firm. In what follows the authors review some of the literature on the taxation of high tech industries and the methodologies developed to measure how taxes influence Research and Development (R&D). Tax provisions that directly affect the returns to pharmaceutical R&D are described in the first section. The section includes a discussion of how the tax code treats the returns to R&D efforts undertaken by corporations that have subsidiaries and branches located in foreign countries and in U.S. possessions such as Puerto Rico. The second section briefly reviews the summary statistics commonly used by public finance economists to measure investment incentives: the cost of capital and the marginal effective tax rate. The authors critically review work that has attempted to calculate these measures for high tech firms and discuss a small set of results. The last section offers some concluding remarks concerning effective marginal tax rates for the pharmaceutical industry.