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Is a higher rate of R&D tax credit a panacea for low levels of R&D in disadvantaged regions?

Listed author(s):
  • Harris, Richard
  • Li, Qian Cher
  • Trainor, Mary

This paper studies the impact of R&D spending on output as well as forecasting the impact of a regionally enhanced R&D tax credit on the 'user cost' (or price) of R&D expenditure and subsequently the demand for R&D. The example we use of a 'disadvantaged' region is Northern Ireland (partly because it has the lowest levels of R&D spending in the UK, and partly because the necessary data is available for this region). We find that in the long run, R&D spending has a mostly positive impact on output across various manufacturing industries. In addition, plants with a zero R&D stock experience significant one-off negative productivity effects. As to the adjustment of R&D in response to changes in the 'user cost', our results suggest a rather slow adjustment over time, and a long-run own-price elasticity of around -1.4 for Northern Ireland. We also find that to have a major impact on R&D spending in the Province, the R&D tax credit would need to be increased substantially; this would be expensive in terms of the net exchequer cost.

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File URL: http://www.sciencedirect.com/science/article/pii/S0048-7333(08)00236-9
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Article provided by Elsevier in its journal Research Policy.

Volume (Year): 38 (2009)
Issue (Month): 1 (February)
Pages: 192-205

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Handle: RePEc:eee:respol:v:38:y:2009:i:1:p:192-205
Contact details of provider: Web page: http://www.elsevier.com/locate/respol

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