Journal Article

Do R&D tax credits work? evidence from a panel of countries 1979 - 1997

Date: 25 August 2002
Publisher: The IFS
Published in: Journal of Public Economics
JEL classification: L13, 031, C25

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 nineteen 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 inuences. We estimate that a 10 per cent fall in the cost of R&D stimulates just over a 1 per cent rise in the level of R&D in the short-run; and just under a 10 per cent rise in R&D in the long-run.