Do R&D Tax Credits Work? Evidence from a Panel of Countries 1979-1997
Posted: 30 Jul 2008
Date Written: January 1, 2002
Abstract
This paper examines the impact of fiscal incentives on the level of R&D investment. An econometric model of R&D investment is estimated using a new panel of data on tax changes and R&D spending in nine OECD countries over a 19-year period (1979-1997). We find evidence that tax incentives are effective in increasing R&D intensity. This is true even after allowing for permanent country-specific characteristics, world macro shocks and other policy influences.We estimate that a 10% fall in the cost of R&D stimulates just over a 1% rise in the level of R&D in the short-run, and just under a 10% rise in R&D in the long-run.
Keywords: Tax credits, R&D, Panel data, Tax competition
JEL Classification: L13, 031, C25
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