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A cost-benefit analysis of R&D tax incentives

  • Benjamin Russo

Although technical knowledge generates spillover benefits, production of technical knowledge creates congestion externalities; thus, private R&D investment could be inefficient. A computable general equilibrium model is used to rank tax incentives by their effects on research effort and measure welfare effects. Five results stand out: R&D tax credits produce relatively large increases in research effort and welfare. Lower corporate income tax rates and ITCs for downstream users of high-tech production inputs rank second. Revenue losses from lower personal income tax rates can produce welfare losses. Ironically, ITCs for upstream producers of innovative inputs are ineffective. Incremental R&D credits dominate comprehensive credits.

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Article provided by Canadian Economics Association in its journal Canadian Journal of Economics.

Volume (Year): 37 (2004)
Issue (Month): 2 (May)
Pages: 313-335

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Handle: RePEc:cje:issued:v:37:y:2004:i:2:p:313-335
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