Impact of the Medical Device Tax on Firm R&D and Performance: Evidence from the Affordable Care Act

Abstract

This article examines how the excise tax affects firm research and development (R&D) investment and performance in the medical device industry in the United States. The Affordable Care Act imposed a 2.3% excise tax on medical devices from January 2013. Using the Compustat data from 2006 and 2015, the author finds that the medical device tax significantly reduced the R&D investment, sales revenues, gross margins, earnings, and return on equity for medical device manufacturing firms. In addition, the device tax significantly increased their international sales revenue, international diversification, and customer diversification in the U.S. markets.