Rewarding Innovation: Improving Federal Tax Support for Business R&D in Canada

Mark Parsons
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Mark Parsons: PricewaterhouseCoopers L.L.P.

C.D. Howe Institute Commentary, 2011, issue 334

Abstract: Business innovation is viewed by many as a solution to Canada’s ailing productivity performance. One of the more troubling aspects of Canada’s innovation track record is that businesses spend relatively little on research and development (R&D) despite having access to some of the world’s most generous R&D tax incentives. Canada’s low levels of business R&D have called into question the effectiveness of Canada’s generous R&D tax incentives, particularly the flagship federal Scientific Research and Experimental Development (SR&ED) program. A deeper analysis, however, reveals that tax incentives are effective in stimulating more R&D – that is, Canada would have lower levels of business R&D in the absence of these inducements. Instead, the root cause of Canada’s business R&D deficit appears to stem from structural aspects of the economy and, more importantly, a lack of demand-related pressure to pursue innovation.

Keywords: Fiscal and Tax Competitiveness; Canada; research and development (R&D) incentives; Scientific Research and Experimental Development (SR&ED) program (search for similar items in EconPapers)
JEL-codes: H2 H59 O38 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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