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Macroeconomic effects of R&D tax credits on small and medium enterprises

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  • Chanyoung Hong
  • Jeong-Dong Lee

Abstract

Research and development (R&D) is regarded as a core factor for the long-run performance of both large enterprises (LEs) and small and medium-sized enterprises (SMEs). This paper analyzes the economic effects of R&D tax credits by firm size. It mainly aims to compare the results of tax policies oriented towards LEs to those towards SMEs. In order to estimate the impact numerically, we use a computable general equilibrium model, which incorporates some essential characteristics of knowledge. First, we introduce a social accounting matrix that differentiates between SMEs and LEs in manufacturing industries. Then, a knowledge-based macroeconomic model estimates outcomes for policy scenarios regarding tax incentives. The results show that SMEs support more rapid growth than do LEs when the same volume of tax credits is offered to both enterprise types. We suggest that the intensity of knowledge spillovers induced by SMEs is driving this result.

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  • Chanyoung Hong & Jeong-Dong Lee, 2016. "Macroeconomic effects of R&D tax credits on small and medium enterprises," Economic Systems Research, Taylor & Francis Journals, vol. 28(4), pages 467-481, October.
    • Handle: RePEc:taf:ecsysr:v:28:y:2016:i:4:p:467-481
    DOI: 10.1080/09535314.2016.1240067
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    3. Xiaobao Song & Chun Guo & Wunhong Su, 2020. "Preferential Income Tax Rate and Research and Development Investment: Evidence from Small and Medium-Sized Listed Firms in China," Accounting and Finance Research, Sciedu Press, vol. 9(1), pages 1-1, February.
    4. Betarelli Junior, Admir Antonio & Faria, Weslem Rodrigues & Gonçalves Montenegro, Rosa Livia & Bahia, Domitila Santos & Gonçalves, Eduardo, 2020. "Research and development, productive structure and economic effects: Assessing the role of public financing in Brazil," Economic Modelling, Elsevier, vol. 90(C), pages 235-253.
    5. Chang, Kai & Wan, Qiong & Lou, Qichun & Chen, Yili & Wang, Weihong, 2020. "Green fiscal policy and firms’ investment efficiency: New insights into firm-level panel data from the renewable energy industry in China," Renewable Energy, Elsevier, vol. 151(C), pages 589-597.

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