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Why are tax incentives increasingly used to promote private R&D?

Author

Listed:
  • Adão Carvalho

    (University of Évora and CEFAGE)

Abstract
Although not new, tax incentives have known major changes over recent years and it is becoming an increasingly important instrument in the policy mix to stimulate private R&D in many countries around the world. The OECD reports three major trends: The implementation of R&D tax incentives schemes by a growing number of OECD and non- OECD countries; A steady substitution of direct funding schemes for tax incentives schemes to stimulate business R&D; The many changes to tax incentives schemes most countries have done to increase the levels of generosity and attractiveness. This paper attempts to explain the motives behind these trends in R&D policy to stimulate private R&D and takes a multi-level approach as the issue involves political, strategic and economic considerations. The reasons behind the growing preference for tax incentives go much beyond any possible advantage these policies might have over direct measures, and are also the consequence of a political change in the EU R&D policy after the Lisbon Strategy and the subsequent actions to stimulate R&D expenditures, a change in the economic rationale of public support of private R&D in face of the insufficiency of market failures to justify that public intervention in a new context characterised by a public determination to increase the amount of business R&D expenditures, and the growing competition between countries for international R&D investment.

Suggested Citation

  • Adão Carvalho, 2011. "Why are tax incentives increasingly used to promote private R&D?," CEFAGE-UE Working Papers 2011_04, University of Evora, CEFAGE-UE (Portugal).
    • Handle: RePEc:cfe:wpcefa:2011_04
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    File URL: http://www.cefage.uevora.pt/en/content/download/2320/31134/version/1/file/2011_04.pdf
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    References listed on IDEAS

    as
    1. Bruno Van Pottelsberghe & Steve Nysten & Esmeralda Megally, 2003. "Evaluation of current fiscal incentives for business R&D in Belgium," Working Papers CEB 03-011.RS, ULB -- Universite Libre de Bruxelles.
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    Cited by:

    1. Adão Carvalho, 2013. "Financiamento Público à I&D Empresarial em Portugal," Notas Económicas, Faculty of Economics, University of Coimbra, issue 37, pages 34-49, June.
    2. Sabina Hodzic, 2013. "Tax Incentives For Research And Development In Austria And Croatia: B-Index," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 22(2), pages 397-416, december.
    3. Andrés Rodríguez-Pose & Callum Wilkie, 2016. "Context and the role of policies to attract foreign R&D in Europe," European Planning Studies, Taylor & Francis Journals, vol. 24(11), pages 2014-2035, November.
    4. Adão Carvalho & Beatriz Corchuelo, 2013. "A comparative analysis of business R&D policy in Spain and Portugal," Economics and Business Letters, Oviedo University Press, vol. 2(3), pages 116-127.
    5. Stryjek, Joanna, 2018. "Interwencja państwa za pomocą instrumentów polityki innowacyjnej: wprowadzenie bodźców podatkowych w celu zwiększenia nakładów na działalność badawczo-rozwojową w Polsce," Studia z Polityki Publicznej / Public Policy Studies, Warsaw School of Economics, vol. 5(3), pages 1-18, July.
    6. Montmartin, Benjamin & Herrera, Marcos, 2015. "Internal and external effects of R&D subsidies and fiscal incentives: Empirical evidence using spatial dynamic panel models," Research Policy, Elsevier, vol. 44(5), pages 1065-1079.
    7. Sepehr Ghazinoory & Zahra Hashemi, 2023. "The Impact of Government Interventions on the Performance of Biotechnology, Information and Communications Technology, and Electrical and Electronics Firms: Evidence from Iran," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(2), pages 735-751, June.

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    More about this item

    Keywords

    Tax incentives; Business R&D; R&D policy.;
    All these keywords.

    JEL classification:

    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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