External publications

Do R&D credits work? Evidence from a panel of countries 1979-97

Date: 01 April 2000
Publisher: Centre for Economic Policy Research
Volume, issue, pages: CEPR discussion paper DP2415
JEL classification: C25 , L13 , O31
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 (1979-1996). 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 a 1% rise in the level of R&D in the short-run; R&D increases by just under 10% in the long-run. Additionally there is some evidence that changes in R&D tax credits affect decisions over the international location of R&D as suggested by models of tax competition.