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Do R&D Tax Credits Work? Evidence from a Panel of Countries 1979-1997

Nicholas Bloom (), Rachel Griffith () and John van Reenen ()

No 07-020, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: This paper examines the impact of fiscal incentives on the level of R&D investment. An econometric model of R&D investment is estimated using a new panel of data on tax changes and R&D spending in nine OECD countries over a 19-year period (1979–1997). We find evidence that tax incentives are effective in increasing R&D intensity. This is true even after allowing for permanent country-specific characteristics, world macro shocks and other policy influences. We estimate that a 10% fall in the cost of R&D stimulates just over a 1% rise in the level of R&D in the short-run, and just under a 10% rise in R&D in the long-run.

Keywords: tax credits; R&D; panel data; tax competition (search for similar items in EconPapers)
JEL-codes: L13 O31 C25 (search for similar items in EconPapers)
Date: 2007-11
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