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Do R&D Tax Credits Work? Evidence from a Panel of Countries 1979-1997

Author

Listed:
  • Nicholas Bloom

    () (Economics Department, Stanford University)

  • Rachel Griffith

    (Economics, University of Manchester)

  • John Van Reenen

    (London School of Economics)

Abstract

This paper examines the impact of fiscal incentives on the level of R&D investment. An econometric model of R&D investment is estimated using a new panel of data on tax changes and R&D spending in nine OECD countries over a 19-year period (1979–1997). We find evidence that tax incentives are effective in increasing R&D intensity. This is true even after allowing for permanent country-specific characteristics, world macro shocks and other policy influences. We estimate that a 10% fall in the cost of R&D stimulates just over a 1% rise in the level of R&D in the short-run, and just under a 10% rise in R&D in the long-run.

Suggested Citation

  • Nicholas Bloom & Rachel Griffith & John Van Reenen, 2007. "Do R&D Tax Credits Work? Evidence from a Panel of Countries 1979-1997," Discussion Papers 07-020, Stanford Institute for Economic Policy Research.
  • Handle: RePEc:sip:dpaper:07-020
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    References listed on IDEAS

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    More about this item

    Keywords

    tax credits; R&D; panel data; tax competition;

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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