R&D tax incentives : Do R&D tax incentives stimulate innovations and economic growth? Evidence of OECD countries

University essay from Södertörns högskola/Nationalekonomi

Abstract: This study investigates the impact of tax incentives on the firms’ innovative activity and economic growth by using sample of 28 OECD countries. The study using panel data analysis and applies fixed effect OLS models. The results of the econometric investigation indicate that tax incentives have significant and positive effect on the R&D expenditure. Regression analysis also shows a positive significant impact of R&D tax incentives in combination with direct funding for business R&D. The paper finds no evidence of significant relationship between tax incentives and economic growth. The research also finds a positive significant impact of direct R&D support, R&D expenditure and tax incentives on registered patents. We suggest to apply public support policy including both types of support since previous studies showed that tax incentives and direct funding are not perfect substitutes.

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