The Relationship of Economic Growth and Implied Tax Subsidy Rates on R&D Expenditures: A Dynamic Panel Data Analysis For OECD Countries

The current study examines the effect of implied tax subsidy rates on research and development (R&D) expenditures for large-scale firms on economic growth within the scope of 26 OECD countries. A panel data analysis is employed by using annual data for the period 2004-2020. Difference GMM, one of the dynamic panel data analysis methods, is used in the analysis. Annual growth rate is used as explained variable. Implied tax subsidy rates on R&D, gross fixed capital formation as a share of GDP, secondary school enrollment rate, and the ratio of labor force participation rate are also used as explanatory variables in the estimated model. Results show that there is a statistically significant effect of the implied tax subsidy rates on R&D on economic growth. The tax subsidy rate on R&D expenditures has a positive impact on economic growth. This study underscores the importance of the tax subsidies on R&D expenditures for economic growth.