STRATEGY CHANGES AS A RESPONSE TO ALTERATIONS IN TAX POLICY

This study examines how firms in the pharmaceutical industry responded to the R&D tax credit which was enacted in 1981. The change in resear ch intensity (research/sales) subsequent to the tax change was estimat ed for the firms. An increase in research intensity was associated wit h the adoption of the tax credit. The strong response by the firms to the tax credit and the effort to maintain their relative position in r esearch intensity indicate that research intensity is an important str ategic dimension and driving force in the industry.