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A cost‐benefit analysis of R&D tax incentives

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  • Benjamin Russo

Abstract

. 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. JEL Classification: E62, H21, O38 Une analyse coûts avantages des incitations fiscales à investir dans la R&D. Même si la connaissance technique engendre des effets de retombée, la production de connaissance technique crée aussi des effets externes de congestion. Voilà qui suggère que l’investissement privé en R&D peut être inefficace. Ce mémoire utilise un modèle d’équilibre général calculable pour ordonnancer les incitatifs fiscaux selon leurs effets sur l’effort de recherche et pour en mesurer les effets de bien‐être. On note cinq résultats : (1) les crédits d’impôt pour la R&D entraînent des accroissements importants dans l’effort de recherche et dans le niveau de bien‐être; (2) les taux d’imposition plus bas sur les revenus des sociétés et les crédits d’impôt pour l’investissement des utilisateurs d’intrants de haute technologie en aval se classent au deuxième rang; (3) les pertes de revenu attribuables à des taux d’imposition plus bas sur les revenus des personnes peuvent engendrer des pertes de bien‐être; (4) ironiquement, les crédits d’impôt pour l’investissement des producteurs d’intrants innovateurs en amont sont inefficaces; (5) des crédits d’impôt additionnels sur la R&D sont préférables à des crédits compréhensifs.

Suggested Citation

  • Benjamin Russo, 2004. "A cost‐benefit analysis of R&D tax incentives," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(2), pages 313-335, May.
  • Handle: RePEc:wly:canjec:v:37:y:2004:i:2:p:313-335
    DOI: 10.1111/j.0008-4085.2004.854954554284.x
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    Cited by:

    1. Voyvoda, Ebru & Yeldan, Erinç, 2015. "Public policy and growth in Canada: An applied endogenous growth model with human and knowledge capital accumulation," Economic Modelling, Elsevier, vol. 50(C), pages 298-309.
    2. Yawei Qi & Wenxiang Peng & Neal N. Xiong, 2020. "The Effects of Fiscal and Tax Incentives on Regional Innovation Capability: Text Extraction Based on Python," Mathematics, MDPI, vol. 8(7), pages 1-19, July.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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