Edited by Jakob Edler, Paul Cunningham, Abdullah Gök and Philip Shapira
Chapter 2: The impact of fiscal incentives for R & D
R & D tax incentives are a policy tool to support business R & D. Their main rationale is to compensate for limited appropriability of private R & D due to knowledge spillovers. By granting a tax reduction depending on either the volume of or increase in a firm’s R & D expenditure, governments co-finance private R & D. The key direct objective of R & D tax incentives is to raise business R & D expenditure, and most evaluations undertaken have analysed the effectiveness of this instrument based on input additionality. In recent years, fiscal incentives have also been used to target other policy objectives, including the support of small and young firms, strengthening of industry–science linkages and promoting R & D in certain thematic areas. Furthermore there has been more and more attention by governments on broader impacts: the competitiveness of their industry and the international attractiveness of their country as a location for innovation. However, very few evaluations have addressed these issues, and little is yet known about the long-term welfare effects.
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