Tax incentives for R&D: supporting innovative scale-ups?

Abstract

This article investigates the impact of tax incentives targeting young innovative firms and broader R&D tax incentives where effects on young firms are observed. It examines effects on R&D additionality, R&D wages, employment growth, turnover growth, and sales growth from innovative activities. It draws on academic literature and policy evaluation studies and uses a mixed-method approach based on evaluation synthesis. Evidence on the effectiveness of tax incentives on young and small firms’ employment and economic performance is relatively limited, largely due to a dearth of evaluations. This analysis, based on a limited number of studies, finds that with regard to R&D additionality, generic R&D tax incentives tend to have a larger, or at least as large, effect on young companies, both when compared with companies of average age (with the exception of a study on an Irish tax instrument), and when compared with grants and loans. Some evidence also shows a positive effect on wages. More limited evidence shows that R&D tax incentives targeted at young companies tend to have positive effects on R&D intensity and wages, but that effects decrease relatively if combined with other instruments such as subsidies. With regard to output additionality, generic R&D tax incentives have a limited impact on innovation for all companies and a positive impact on turnover, turnover share of new products or services and labour productivity. There is some evidence of positive effects on employment, productivity, sales and added-value of targeted measures, but these results should be validated using more robust methods.

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

“…Similar to other studies (Ferreira et al. , 2019; Mitchell et al. , 2020), the results found indicate that tax incentives have a direct influence on employment (i.e.…”

“…Besides the influence on intangible assets, the tax incentives also have proven effective to promote sales, as pointed out by several authors (B erub e and Mohnen, 2009;Busom et al, 2017;Ghazinoory and Hashemi, 2021;Guo et al, 2016;Mitchell et al, 2020;Santos et al, 2020;Tian et al, 2020). This effect is directly related to the development and commercialization of new products.…”

“…, 2017). Moreover, the evidence suggests that tax incentives have positive effects on sales (Mitchell et al. , 2020).…”

“…Besides, companies that benefit from tax incentives invest in R&D activities incrementally, making it possible to introduce innovations quickly, as well as increase sales (Busom et al, 2017). Moreover, the evidence suggests that tax incentives have positive effects on sales (Mitchell et al, 2020).…”

Evolutionary Game Analysis of the Innovation Behavior of High-Tech Enterprises with Government Participation

“…e greater the R&D expenses of an enterprise are, the more expenses will be deducted accordingly, thereby reducing the enterprise's R&D risk, promoting the enterprise's technology R&D investment, and promoting the cultivation and development of high-tech talent. Whether an enterprise engages in R&D activity, whether it can obtain R&D tax deductions, and the extent of the deductions depend entirely on its independent decision-making, which can further promote the autonomy of enterprise R&D and the improvement of enterprise R&D output and economic performance [31,32]. In addition to providing policy incentives, to ensure that scientific and technological innovation activities are carried out in a standardized and orderly manner, the government will strengthen the supervision and management of recognized high-tech enterprises and penalize behaviors that violate the relevant regulations of high-tech enterprises in terms of innovation or operation activities.…”