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Macroeconomic effects of R&D tax credits on small and medium enterprises

Chanyoung Hong and Jeong-Dong Lee ()

Economic Systems Research, 2016, vol. 28, issue 4, 467-481

Abstract: Research and development (R&D) is regarded as a core factor for the long-run performance of both large enterprises (LEs) and small and medium-sized enterprises (SMEs). This paper analyzes the economic effects of R&D tax credits by firm size. It mainly aims to compare the results of tax policies oriented towards LEs to those towards SMEs. In order to estimate the impact numerically, we use a computable general equilibrium model, which incorporates some essential characteristics of knowledge. First, we introduce a social accounting matrix that differentiates between SMEs and LEs in manufacturing industries. Then, a knowledge-based macroeconomic model estimates outcomes for policy scenarios regarding tax incentives. The results show that SMEs support more rapid growth than do LEs when the same volume of tax credits is offered to both enterprise types. We suggest that the intensity of knowledge spillovers induced by SMEs is driving this result.

Date: 2016
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DOI: 10.1080/09535314.2016.1240067

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