R & D tax credits

Our current understanding of economic growth emphasises the role of new knowledge created by profit-seeking firms as a primary source of long-run growth in GDP and living standards. Firms engage in research and development (R&D) in order to develop new products or to reduce the cost of producing their existing products. They may also need to do R&D in order to understand and absorb new knowledge created elsewhere. This emphasis on the role of R&D is supported by a range of empirical evidence suggesting that R&D expenditure is important for explaining productivity growth at the firm, industry and country level.