Abstract

This article examines political cost factors that affect a state's propensity to adopt a corporate income tax credit to encourage research and development (R&D) activities in the United States. Assuming state elected officials are vote-maximizers, this article hypothesizes that politicians' consideration of potential revenue losses and influence from organized interests are critical in a state's decision to provide a R&D tax credit. To test the hypothesis, two statistical models are specified. With a dichotomous dependent variable of whether or not a R&D tax credit is offered, a Logit regression model is utilized. For the interval level dependent variable of effective R&D credit rates, this article specifies a Tobit model. The results show that politicians' concerns about revenue losses loom much larger than private organized interests.