Optimization in R&D intensity and tax on corporate profits for supporting labor productivity of nations

Abstract

The purpose of this study is to analyze the rates of R&D investments and taxes levied on profits of firms that can optimize the labour productivity of nations. Statistical evidence, based on OECD data, reveals that (very) high rates of R&D intensity and tax on corporate profits do not maximize the labour productivity of nations. In particular, the models here suggest that the R&D intensity equal to about 2.5% and tax on corporate profits equal to 3.1% of the GDP seem to maximize the labour productivity of countries. Beyond these optimal thresholds, the labor productivity begins to decrease. These results can be explained by the curvilinear relationship between labour productivity and R&D intensity, and between labour productivity and tax on corporate profits. Some factors and environmental determinants of these results are discussed. These findings can clarify whenever possible, some sources of labor productivity and suggest a research and industrial policy of optimal rates of R&D intensity and tax on corporate profits (as percentage of GDP) directed to support competitive advantage, technological innovation and wealth creation of nations over time.