Essays on Corporate Innovation and the Public Sector

This dissertation studies how the public sector interacts with private firms, and how this interaction may stifle or support innovation. Currently, the research and writing of two essays is in progress. A third one is in development. The first essay analyzes how the efforts of governments to raise revenues through corporate taxation may have unintended consequences because of innovation-related side effects. One finding is that after an increase in the German local business tax (Gewerbesteuer), companies immediately contract their R&D expenses. After a time lag, patent applications also fall. For policy-makers, it is important to be fully informed about the consequences of setting a particular tax rate in order to make conscious decisions. For more details, see the project description “R&D Investments, Innovation and Corporate Taxation: Evidence from German Municipalities” in section C II 1.4, p. 251 of this report. The second essay investigates a particular channel of knowledge transmission from the public to the private sector. Public investment in research at universities has to be brought to commercialization so that the general public can benefit from new products and services. Scientific conferences are places where the global community of researchers gets together to exchange ideas and knowledge. For companies positioned at the edge of the knowledge frontier, this is exactly the place to be to stay informed about current trends and results, long before they hit the academic printing press. We find that a substantial share of conferences have corporate participants or sponsors and receive citations from patents; an analysis of the importance for knowledge transmission is in progress.