Tax incentives for R&D and firm dynamics (in Finnish with English abstract and summary)

Niku Määttänen and Mika Maliranta

No 1065, Discussion Papers from The Research Institute of the Finnish Economy

Abstract: We compare different tax incentive schemes for private R&D investments using a numerical model of R&D-investments and firm dynamics. We find that tax incentives that are based on the incremental annual spending increase firms' R&D spending much more than tax incentives that are based on the level of R&D spending. However, incremental incentives also distort the allocation of R&D personnel across different firms much more than level-based tax incentives. This effect tends to lower aggregate output. We also find that whether the tax benefits are targeted to only profit-making firms, which pay corporate income tax, or given to all firms, does not make a big difference in terms of aggregate R&D spending or aggregate output.

Keywords: research and development; tax incentives; firm dynamics (search for similar items in EconPapers)
JEL-codes: H25 L11 O38 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2007
New Economics Papers: this item is included in nep-ino and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:rif:dpaper:1065

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