Is a higher rate of R&D tax credit a panacea for low levels of R&D in disadvantaged regions?

Harris, R., Li, Q. and Trainor, M. (2009) Is a higher rate of R&D tax credit a panacea for low levels of R&D in disadvantaged regions? Research Policy, 38(1), pp. 192-205. (doi: 10.1016/j.respol.2008.10.016)

Abstract

This paper studies the impact of R&D spending on output as well as forecasting the impact of a regionally enhanced R&D tax credit on the 'user cost' (or price) of R&D expenditure and subsequently the demand for R&D. The example we use of a 'disadvantaged' region is Northern Ireland (partly because it has the lowest levels of R&D spending in the UK, and partly because the necessary data is available for this region). We find that in the long run, R&D spending has a mostly positive impact on output across various manufacturing industries. In addition, plants with a zero R&D stock experience significant one-off negative productivity effects. As to the adjustment of R&D in response to changes in the 'user cost', our results suggest a rather slow adjustment over time, and a long-run own-price elasticity of around −1.4 for Northern Ireland. We also find that to have a major impact on R&D spending in the Province, the R&D tax credit would need to be increased substantially; this would be expensive in terms of the net exchequer cost.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Li, Miss Qian and Harris, Prof Richard
• Authors: Harris, R., Li, Q., and Trainor, M.
• Subjects: H Social Sciences > HV Social pathology. Social and public welfare; H Social Sciences > HJ Public Finance
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Research Policy
• Publisher: Elsevier
• ISSN: 0048-7333
• Copyright Holders: Copyright © 2009 Elsevier
• First Published: First published in Research Policy 38(1):192-205
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher