The Effectiveness of R&D Tax Credits: Cross-Industry Evidence

Melbourne Institute Working Paper No. 18/13

Date: May 2013


Russell Thomson


This paper presents new estimates of the efficacy of R&D tax incentives using cross-country cross-industry data and a novel measure of tax policy that incorporates differences in the average capital–labour ratio in R&D investment across industries and variation in the tax treatment of different expenditure types across countries and over time. The results suggest that, in the short run, industry increases R&D investment by 0.24 dollars for every dollar of tax revenue forgone. The results appear to be more robust than estimates based on cross-country or firm-level data.

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  • Innovation policy, R&D tax credits, determinants of R&D investment