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The Impact and Effectiveness of Fiscal Incentives for R&D

Nesta Working Paper 12/01
Issued: January 2012
JEL Classification: O38
Keywords: Fiscal Incentives, R&D expenditure, Impact, Effectiveness

Abstract

This paper is part of the Compendium of Evidence on the Effectiveness of Innovation Policy Intervention. It reviews the experience of business R&D tax incentives in OECD countries and presents findings on using this instrument for achieving certain R&D policy objectives. Based on economic and policy rationales for R&D tax incentives, design features of the instrument are discussed which contribute to its flexibility and its ability to address different policy objectives. The main part of the paper summarizes the results of evaluations of R&D fiscal incentives. Most studies focus on input additionality –the contribution of the tax incentive to increased business R&D expenditure while there is less evidence on output additionality – the effects of R&D tax incentives on innovation and economic impact. Evaluation results are linked to design features of the evaluated instruments to derive conclusions about how R&D tax incentives can be designed for meeting particular policy goals.

Authors

Christian Köhler, Philippe Laredo, Christian Rammer

The Nesta Working Paper Series is intended to make available early results of research undertaken or supported by Nesta and its partners in order to elicit comments and suggestions for revisions and to encourage discussion and further debate prior to publication (ISSN 2050-9820). The views expressed in this working paper are those of the author(s) and do not necessarily represent those of Nesta.