What the design of an R&;D tax incentive tells about its effectiveness: a simulation of R&;D tax incentives in the European Union |
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Authors: | Christina Elschner Christof Ernst Georg Licht Christoph Spengel |
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Institution: | (1) University of Mannheim, Mannheim, Germany;(2) Centre for European Economic Research (ZEW), L7,1, 68161 Mannheim, Germany;; |
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Abstract: | Most industrialized countries apply special tax incentives to boost the R&D expenditures of firms. This study considers the
design of such R&D tax incentives as applied in the European Union and simulates its effect on the post-tax R&D expenditures
of firms in different industries and different profit/loss-situations by means of the simulation model European Tax Analyzer.
Any restrictions and progressive tax incentives are explicitly taken into account. Our results indicate that for designing
and measuring public support to R&D it is often not sufficient to focus only on tax rate effects of R&D tax incentives and
the design of a tax incentive must be in accordance with the framing tax system in order to be effective. As soon as there
are any limitations in place, our results suggest a considerably lower impact of R&D tax incentives on the post-tax R&D expenditures
than the commonly used B-Index by the OECD. The results clearly illustrate the beneficial impact of immediate cash refunds
for unused tax incentives. |
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