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Measuring the cost effectiveness of an R&D tax credit for the UK

Griffith, Rachel and Redding, Stephen and Van Reenen, John (2001) Measuring the cost effectiveness of an R&D tax credit for the UK. 509. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: 509

Abstract

This paper investigates the economic impact of the government's proposed new UK R&D tax credit. We measure the benefit of the credit by the effect on value added in the short and long_run. This is simulated from existing econometric estimates of the tax_price elasticity of R&D and the effect of R&D on productivity. For the latter we allow R&D to have an effect on technology transfer (catching up with the technological frontier) as well as innovation (pushing the frontier forward). We then compare the increase in value added to the likely exchequor costs of the program under a number of scenarios. In the long run the increase in GDP far outweighs the costs of the tax credit. The short run effect is far smaller with valueadded only exceeding cost if R&D grows at or below the rate of inflation.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk
Additional Information: © 2001 Rachel Griffith, Stephen Redding and John Van Reenen
Subjects: H Social Sciences > HB Economic Theory
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Departments > Economics
Date Deposited: 17 Feb 2008
Last Modified: 01 Oct 2010 08:43
URI: http://eprints.lse.ac.uk/id/eprint/782

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