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Accelerating Innovation: National R&D Subsidies versus Foreign R&D Tax Credits

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Author Info
Felipa de Mello-Sampayo (ISCTE - Department of Economics and UNIDE-ERC)
Sofia de Sousa-Vale () (ISCTE - Department of Economics and UNIDE-ERC)
Francisco Camões (ISCTE - Department of Economics and UNIDE-ERC)
Abstract

This paper examines and compares the impact on growth of government’s funding national R&D or providing a tax rate reduction for foreign investment in R&D. In an innovationbased model we show the relation between the costs of these two policies. One meaningful policy implication of our results is that, to accelerate innovation, governments should adopt a tax rate deduction for foreign R&D, rather than subsidizing national R&D, because the former is more economical and effective than the latter.

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File URL: http://erc.unide.iscte.pt/wpi/ERCwp0108.pdf
File Format: application/pdf
File Function: First version, 2007
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Publisher Info
Paper provided by ISCTE, UNIDE, Economics Research Centre in its series Working Papers with number ercwp0108.

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Length: 15 pages
Date of creation: Jun 2007
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Handle: RePEc:isc:wpaper:ercwp0108

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Related research
Keywords: Endogenous Growth; Foreign Direct Investment; Taxes;

Find related papers by JEL classification:
F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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  1. Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, vol. 106(434), pages 92-105, January. [Downloadable!] (restricted)
  2. Jones, Larry E & Manuelli, Rodolfo E & Rossi, Peter E, 1993. "Optimal Taxation in Models of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 485-517, June. [Downloadable!] (restricted)
  3. Reis, Ana Balcao, 2006. "Welfare, taxes and foreign investment," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 1045-1061, June. [Downloadable!] (restricted)
  4. Balcao Reis, Ana, 2001. "On the welfare effects of foreign investment," Journal of International Economics, Elsevier, vol. 54(2), pages 411-427, August. [Downloadable!] (restricted)
  5. Jones, Larry E. & Manuelli, Rodolfo E. & Rossi, Peter E., 1997. "On the Optimal Taxation of Capital Income," Journal of Economic Theory, Elsevier, vol. 73(1), pages 93-117, March. [Downloadable!] (restricted)
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  6. Feenstra, Robert C., 1996. "Trade and uneven growth," Journal of Development Economics, Elsevier, vol. 49(1), pages 229-256, April. [Downloadable!] (restricted)
    Other versions:
  7. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October. [Downloadable!] (restricted)
    Other versions:
  8. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-86, November. [Downloadable!] (restricted)
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