CAPITALIZING R&D EXPENDITURES

Walter Diewert and Ning Huang

Macroeconomic Dynamics, 2011, vol. 15, issue 4, 537-564

Abstract: The next international version of the System of National Accounts will recommend that R&D (Research and Development) expenditures be capitalized instead of being immediately expensed as in the present System of National Accounts 1993. An R&D project creates a new technology, which in principle does not depreciate like a reproducible asset. A new technology is, however, subject to obsolescence, which acts in a manner that is somewhat similar to depreciation. The paper looks at the net benefits of an R&D project in the context of a very simple intertemporal general equilibrium model and suggests that R&D expenditures be amortized using the matching principle that has been developed in the accounting literature to match the fixed costs of a project to a stream of future benefits. Of particular interest is the evaluation of the net benefits of a publicly funded project where the results are made freely available to the public.

Date: 2011
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Working Paper: Capitalizing R&D Expenditures (2008)
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