Experimental Analysis of the Behavioral Effects of Tax Incentive Design on Innovation

• Applicants: Professor Dr. Kay Blaufus; Professorin Dr. Marina Schröder
• Subject Area: Economic Policy, Applied Economics ; Accounting and Finance
• Term: since 2022
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 492695807

The project aims at combining experimental tax and innovation research to investigate the effectiveness of tax incentives to promote innovation. More than 80 percent of OECD countries currently have special tax incentives to increase innovation. However, the specific design of tax incentives varies considerably, and the question of which design is most effective is currently unresolved empirically. In particular, differences can be identified in existing subsidy practice along the following three dimensions: (1) input-based versus output-based incentives(2) Level-based versus incremental-based input incentives(3) General versus targeted incentivesFollowing the three dimensions, the research project consists of three subprojects, each of which will use experiments to investigate the question of which funding design is most effective in increasing the number and quality of innovative ideas on the one hand and increasing investments in innovation on the other.The project thus represents a contribution to both tax and innovation research. It also adds a new experimental paradigm to previous research in this area. The use of experiments has the advantage that causal effects can be identified by varying certain design aspects of tax incentives under controlled conditions, which is regularly not possible in field research. This allows us to identify which incentive design most efficiently increases innovation.

• DFG Programme: Research Grants