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The Effectiveness of R&D Tax Credits: Cross-Industry Evidence

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  • Russell Thomson

    ()
    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne)

Abstract

This paper presents new estimates of the efficacy of R&D tax incentives using cross-countrycross-industry data and a novel measure of tax policy that incorporates differences in the average capital–labour ratio in R&D investment across industries and variation in the tax treatment of different expenditure types across countries and over time. The results suggest that, in the short run, industry increases R&D investment by 0.24 dollars for every dollar of tax revenue forgone. The results appear to be more robust than estimates based on crosscountry or firm-level data.

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Bibliographic Info

Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2013n18.

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Length: 11pp
Date of creation: May 2013
Date of revision:
Handle: RePEc:iae:iaewps:wp2013n18

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Postal: Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, Victoria 3010 Australia
Phone: +61 3 8344 2100
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Web page: http://www.melbourneinstitute.com/
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Keywords: Innovation policy; R&D tax credits; determinants of R&D investment;

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  1. Dominique Guellec & Bruno van Pottelsberghe de la Potterie, 2000. "The Impact of Public R&D Expenditure on Business R&D," OECD Science, Technology and Industry Working Papers 2000/4, OECD Publishing.
  2. Bronwyn Hall, 1992. "R&D Tax Policy During the Eighties: Success or Failure?," NBER Working Papers 4240, National Bureau of Economic Research, Inc.
  3. Russell Thomson, 2010. "Tax Policy and R&D Investment by Australian Firms," The Economic Record, The Economic Society of Australia, vol. 86(273), pages 260-280, 06.
  4. Daniel J. Wilson, 2009. "Beggar Thy Neighbor? The In-State, Out-of-State, and Aggregate Effects of R&D Tax Credits," The Review of Economics and Statistics, MIT Press, vol. 91(2), pages 431-436, May.
  5. Russell Thomson, 2012. "Measure of R&D Tax Incentives for OECD Countries," Melbourne Institute Working Paper Series wp2012n17, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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