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Tax Incentives for R&D and Innovation: Demand versus Effects

Author

Listed:
  • Leonid Gokhberg

    () (Institute for Statistical Studies and Economics of Knowledge, National Research University Higher School of Economics, Russia)

  • Galina Kitova

    () (Institute for Statistical Studies and Economics of Knowledge, National Research University Higher School of Economics, Russia)

  • Vitaliy Roud

    () (Institute for Statistical Studies and Economics of Knowledge, National Research University Higher School of Economics, Russia)

Abstract

Tax incentives have proven to be an efficient tool of state support for science, technology and innovation, and are used by many countries on their way towards sustainable development and enhancing global competitiveness. Fiscal stimuli are increasingly combined in a more flexible manner, thus contributing to attaining wider spectrum of objectives; means of international comparison and evaluating impact of these tools are actively evolving. However, despite the fact that for many countries the tax incentives are demandable and work effectively, Russia's situation is different. Based on the results of a specialized survey, the paper estimates the demand for R&D tax breaks from Russian manufacturing enterprises, research organizations and universities performing R&D. The study demonstrated that such a demand is generally low for all types of surveyed organizations, probably due to both the imperfection of the Russian tax legislation, which makes the considered tool inefficient, and low share of the organizations engaged in R&D and innovation. Among the most frequently noted demotivating factors were mismatch of organization’s activity to the terms of using a specific tax break, as well as unwarranted costs associated with the need to prove the right to use these breaks. When using a specific tax incentive, the research institutions typically seek exemption from VAT for R&D activities and patent licensing operations, as well as benefit to mainstream targeted grants. Universities engaged in R&D are more likely to turn to the benefits for grants and accelerated depreciation of fixed assets used for scientific and technological activities. The analysis showed that in Russia the public sector dominates among all categories of recipients of tax incentives for research and innovation. This situation is contrary to best practices and global trends in supporting research activities, which involve betting on strong national players (including startups and SMEs). It hardly allows STI tax incentives to be an efficient mean and provides a basis for the revision and optimization of these tools. This paper indicates possible further directions in the studying tax incentives, their classification, performance assessment and optimization to meet best practices, global trends, and the forefront of research in this area.

Suggested Citation

  • Leonid Gokhberg & Galina Kitova & Vitaliy Roud, 2014. "Tax Incentives for R&D and Innovation: Demand versus Effects," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 8(3), pages 18-41.
  • Handle: RePEc:hig:fsight:v:8:y:2014:i:3:p:18-41
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    File URL: http://foresight-journal.hse.ru/data/2014/10/10/1100831079/2-Kitova-18-41.pdf
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    Other versions of this item:

    • Leonid Gokhberg & Galina Kitova & Vitaliy Roud, 2014. "Tax incentives for r&d and innovation: demand versus effects," Foresight-Russia Форсайт, CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Национальный исследовательский университет «Высшая школа экономики», vol. 8(3 (eng)), pages 18-41.

    References listed on IDEAS

    as
    1. Leonard E. Burman & Christopher Geissler & Eric J. Toder, 2008. "How Big Are Total Individual Income Tax Expenditures, and Who Benefits from Them?," American Economic Review, American Economic Association, vol. 98(2), pages 79-83, May.
    2. Leonid Gokhberg & Tatyana Kuznetsova, 2011. "Strategy 2020: New Outlines of Russian Innovation Policy," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 5(4), pages 8-30.
    3. Denis Ivanov & Mikhail Kuzyk & Yury Simachev, 2012. "Fostering Innovation Performance of Russian Manufacturing Enterprises: New Opportunities and Limitations," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 6(2), pages 18-42.
    4. Mansfield, Edwin, 1986. "The R&D Tax Credit and Other Technology Policy Issues," American Economic Review, American Economic Association, vol. 76(2), pages 190-194, May.
    5. Mansfield, Edwin & Switzer, Lorne, 1985. "The effects of R&D tax credits and allowances in Canada," Research Policy, Elsevier, vol. 14(2), pages 97-107, April.
    6. Köhler, Christian & Larédo, Philippe & Rammer, Christian, 2012. "Fiscal incentives for business R&D: Compendium of evidence on the effectiveness of innovation policy intervention," ZEW Expertises, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, number 111472.
    7. Jeffrey I. Bernstein, 1986. "The Effect of Direct and Indirect Tax Incentives on Canadian Industrial R&D Expenditures," Canadian Public Policy, University of Toronto Press, vol. 12(3), pages 438-448, September.
    8. Tatyana Kuznetzova & Vitaly Roud, 2011. "Efficiency Factors and Motivations Driving Innovative Activity of Russian Industrial Enterprises," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 5(2), pages 34-47.
    9. Burman, Leonard E., 2003. "Is the Tax Expenditure Concept Still Relevant?," National Tax Journal, National Tax Association;National Tax Journal, vol. 56(3), pages 613-627, September.
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    Citations

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    Cited by:

    1. Leonid Gokhberg & Vitaliy Roud, 2016. "Structural changes in the national innovation system: longitudinal study of innovation modes in the Russian industry," Economic Change and Restructuring, Springer, vol. 49(2), pages 269-288, August.
    2. repec:eee:tefoso:v:123:y:2017:i:c:p:191-198 is not listed on IDEAS
    3. Irina Dezhina & Alexey Ponomarev & Alexander Frolov, 2015. "Advanced Manufacturing Technologies in Russia: Outlines of a New Policy," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 9(1), pages 20-31.
    4. repec:nea:journl:y:2017i:34:p:59-93 is not listed on IDEAS
    5. repec:spr:jknowl:v:8:y:2017:i:3:d:10.1007_s13132-016-0400-x is not listed on IDEAS
    6. Mikhail A. Gershman & Galina A. Kitova, 2016. "Evaluation of Research and Innovation Policies: The Case of Russian Universities," HSE Working papers WP BRP 57/STI/2016, National Research University Higher School of Economics.
    7. Carayannis, Elias & Grebeniuk, Anna & Meissner, Dirk, 2016. "Smart roadmapping for STI policy," Technological Forecasting and Social Change, Elsevier, vol. 110(C), pages 109-116.

    More about this item

    Keywords

    tax incentives; R&D; research organizations; manufacturing enterprises; R&D-performing universities; tax behaviour;

    JEL classification:

    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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