R&D tax credits: A review and an econometric study on the policy mix

R&D tax credit schemes have become important components of innovation policy in many industrialized countries. Governments are using substantial amounts of taxpayers’ money to subsidize firms’ R&D activities through tax credits and similar schemes. However, the evidence on whether R&D tax credits are an effective policy instrument is still limited. In the last two decades, scholars focused on investigating the functionality of R&D tax credit schemes with methods of econometric treatment effects estimation. We review the recent microeconometric studies at the firm-level and synthesize their findings with a focus on methods and interactions with other policy instruments. We also conduct an econometric study on the policy mix, in particular how the effects of R&D tax credit schemes relate to R&D grants. We conclude that future research should be directed more at interaction effects of different policy schemes or government regulation, because we find evidence for possible crowding-out effects among instruments.

Hovdan, Brigitte, Dirk Czarnitzki and Pierluigi Angelino (2023), R&D tax credits: A review and an econometric study on the policy mix, in: Pontus Braunerhjelm, Martin Andersson, Knut Blind, Johan Eklund (Eds.), Edward Elgar Publishing, Cheltenham, 318-345