SOTA Review

R&D tax credits verses R&D grants: effectiveness for R&D investment

ERC SOTA review No 59

Associated Themes
  • Innovation

The importance of Research & Development (R&D) in explaining productivity, economic growth and competitiveness is well documented in research literature. Public policies have been considered as necessary to incentivise and optimise private R&D investments. Previous SOTA Reviews of the impact of different policy instruments on firm-level R&D provide evidence of significant positive impact of individual instruments as well as policy mixes. Direct R&D grants and indirect R&D tax incentives (R&D tax credits) are the main instruments used by most governments to promote an increase in private sector R&D activity. But how effective is R&D tax credit in promoting an increase in R&D activities verses R&D grants? What are the contextual factors which inform or moderate the relative impact of tax credits and grants?

The purpose of this SOTA Review is to answer these questions drawing on the research evidence.