Measuring the cost effectiveness of an R&D tax credit for the UKRachel Griffith, Stephen Redding and John van Reenen LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library Abstract: This paper investigates the economic impact of the government's proposed new UK R&D tax credit. We measure the benefit of the credit by the effect on value added in the short and long_run. This is simulated from existing econometric estimates of the tax_price elasticity of R&D and the effect of R&D on productivity. For the latter we allow R&D to have an effect on technology transfer (catching up with the technological frontier) as well as innovation (pushing the frontier forward). We then compare the increase in value added to the likely exchequor costs of the program under a number of scenarios. In the long run the increase in GDP far outweighs the costs of the tax credit. The short run effect is far smaller with valueadded only exceeding cost if R&D grows at or below the rate of inflation. Keywords: Growth; innovation; R&D; tax credit; total factor productivity (TFP). (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:782 Access Statistics for this paper More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC. |
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