Discussion Paper Details

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Title: Do R&D Credits Work? Evidence From A Panel Of Countries 1979-97

Author(s): Nicholas Bloom, Rachel Griffith and John Van Reenen

Publication Date: April 2000

Keyword(s): Panel Data, R&D and Tax Competition

Programme Area(s): Industrial Organization and Public Economics

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 nineteen-year period (1979-1996). 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 a 1% rise in the level of R&D in the short-run; R&D increases by just under 10% in the long-run. Additionally there is some evidence that changes in R&D tax credits affect decisions over the international location of R&D as suggested by models of tax competition.

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Bibliographic Reference

Bloom, N, Griffith, R and Van Reenen, J. 2000. 'Do R&D Credits Work? Evidence From A Panel Of Countries 1979-97'. London, Centre for Economic Policy Research.