R&D tax incentives and innovation: unveiling the mechanisms behind innovation capacity

Abstract

PurposeThere is a scarcity of empirical evidence in the literature on the chain of causality involving tax incentives for Research and Development (R&D) activities and their subsequent transformation into innovation. This study aims to assess the influence of R&D tax incentives on the organizational attributes of Portuguese firms to identify how they are converted into innovation.Design/methodology/approachA structural research model consisting of 339 companies that benefited from the Fiscal Incentive System supporting R&D in Enterprises, during the period from 2013 to 2016, was developed. This was done to assess the role of R&D tax incentives on the organizational attributes that form the innovation capacity. The model was validated using the multivariate statistical technique of structural equation modeling with partial least squares estimation (partial least squares structural equation modeling – PLS-SEM).FindingsThe results found suggest that although it is not possible to unequivocally identify the mechanisms used to convert tax incentives into innovation, it is possible to conclude that they play an important spillover effect for the construction and strengthening of organizational attributes. These form the basis of innovation capacity, to the extent that they positively influence the firms’ total assets, equity, liabilities, number of employees and sales. Hence, contributions are brought to both the literature on tax incentives and the general literature on innovation.Originality/valueFor policymakers, the evidence points to the fact that in addition to the incentives provided, novel mechanisms need to be established to help firms develop their absorptive capacity. The objective is to effectively convert the incentives received into innovation through the organizational attributes analyzed. From the firms’ point of view, the results found suggest that tax incentives act as a catalyst for making R&D investments. Additionally, there is an influence on employability, which effectively enhances the chances of innovation in the long run. Tax incentives received by Portuguese firms also have the effect of promoting economic dynamism – by enhancing the following: investments in infrastructure, the hiring of employees and the increasing of sales, generating positive externalities for both firms and society.

Selected aspects of indirect R&D support in the Czech Republic

“…These companies are a relatively important part of any developed country's innovation ecosystem. The falling usage of tax incentives can lead to a decrease in sales (Walter et al, 2022) and subsequently diminish the profitability of those companies (Picas et al, 2021). Compared to the large multinational corporations, the outputs of their R&D activities will probably be applied in the country which provided the support.…”

The influence of cognitive technologies on the decision-making process and the purchasing experience in retail

“…In terms of partnerships, building dynamic partnerships with retail technology solution providers may be necessary for the retailer to improve its operations and market approaches successfully (Wyk et al, 2018), which leads to the need to establish a fruitful innovation ecosystem in which all participants derive significant benefits from the relationships established (Daskou & Mangina, 2003;Kaur et al, 2020;Suominen et al, 2019;Walter et al, 2022Walter et al, , 2023.…”

Los incentivos tributarios y el desempeño financiero: evidencia empírica de empresas Ecuatorianas

“…While the application of tax incentives is positively related to investment (Bayona et al, 2018), innovation (Walter et al, 2022), and business performance (Uwuigbe et al, 2016), it is essential to note that additional aspects of fiscal policy influence these effects. These impacts are macroeconomic balance, infrastructure conditions, and the strength of the country's institutions (Munongo et al, 2017), in addition to the certainty perceived by investors regarding the economic growth of the place where they operate (Guceri and Albinowski, 2021).…”