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Do R&D Credits Work? Evidence From A Panel Of Countries 1979-97

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  • Bloom, Nicholas
  • Griffith, Rachel
  • Van Reenen, John

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 nineteen-year period (1979-1996). 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 a 1% rise in the level of R&D in the short-run; R&D increases by just under 10% in the long-run. Additionally there is some evidence that changes in R&D tax credits affect decisions over the international location of R&D as suggested by models of tax competition.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2415.

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Date of creation: Apr 2000
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Handle: RePEc:cpr:ceprdp:2415

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Keywords: Panel Data; R&D; Tax Competition;

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References

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  1. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
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Citations

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Cited by:
  1. Pierre Mohnen & Boris Lokshin, 2009. "What does it take for and R&D tax incentive policy to be effective?," Working Papers 2009/9, Institut d'Economia de Barcelona (IEB).
  2. Baghana, Rufin & Mohnen, Pierre, 2009. "Effectiveness of R&D Tax Incentives in Small and Large Enterprises in Quebec," MERIT Working Papers 001, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  3. KASAHARA Hiroyuki & SHIMOTSU Katsumi & SUZUKI Michio, 2011. "How Much Do R&D Tax Credits Affect R&D Expenditures? Japanese tax credit reform in 2003," Discussion papers 11072, Research Institute of Economy, Trade and Industry (RIETI).

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