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Abstract
In this paper, I exploit the cross-sectional and time-series variation in RD the estimated elasticity is negative, above unity (in absolute value), and statistically significant - a finding quite similar to that found by previous studies based on alternative data. Unlike previous studies, however, I then add the external R&D user cost to the regressions. I find the external-cost elasticity is positive and significant, raising concerns about whether having state-level R&D tax credits on top of federal credits is socially desirable. More importantly, I find the aggregate R&D price elasticity - the difference between the internal- and external-cost elasticities - is far smaller than previously estimated. In fact, the preferred specification yields a zero aggregate elasticity, suggesting a zero-sum game among states and raising questions about the efficacy of R&D tax credits more broadly.
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