How Effective Are R&D Tax Incentives? Reconciling the Micro and Macro Evidence

Recent firm-level studies find R&D tax incentives to be much more effective at stimulating firms’ R&D investment than aggregate analyses suggest. Based on a distributed analysis of official R&D survey and administrative tax relief microdata for 19 OECD countries, we show that two factors can reconcile these contrasting results. First, the limited uptake of R&D tax incentives in most countries makes aggregate studies underestimate the effectiveness of R&D tax incentives. Secondly, R&D tax incentives are (much) less effective for large and R&D-intensive firms, which account for a small share of R&D-performing firms but most aggregate R&D tax relief. (JEL D22, H25, H32, L25, O31)