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

Griffith, Rachel, Redding, Stephen and Van Reenen, John ORCID: 0000-0001-9153-2907 (2001) Measuring the cost effectiveness of an R&D tax credit for the UK. CEP Discussion Papers (509). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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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
Divisions:	Centre for Economic Performance Economics
Subjects:	H Social Sciences > HB Economic Theory
JEL classification:	H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output (Income) Convergence O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O32 - Management of Technological Innovation and R&D
Date Deposited:	17 Feb 2008
Last Modified:	08 Nov 2023 13:00
URI:	http://eprints.lse.ac.uk/id/eprint/782

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