IDEAS home Printed from https://ideas.repec.org/p/isc/iscwp1/ercwp0108.html
   My bibliography  Save this paper

Accelerating Innovation: National R&D Subsidies versus Foreign R&D Tax Credits

Author

Listed:
  • Felipa de Mello-Sampayo

    (ISCTE - Department of Economics and UNIDE-ERC)

  • Sofia de Sousa-Vale

    (ISCTE - Department of Economics and UNIDE-ERC)

  • Francisco Camões

    (ISCTE - Department of Economics and UNIDE-ERC)

Abstract

This paper examines and compares the impact on growth of government’s funding national R&D or providing a tax rate reduction for foreign investment in R&D. In an innovationbased model we show the relation between the costs of these two policies. One meaningful policy implication of our results is that, to accelerate innovation, governments should adopt a tax rate deduction for foreign R&D, rather than subsidizing national R&D, because the former is more economical and effective than the latter.

Suggested Citation

  • Felipa de Mello-Sampayo & Sofia de Sousa-Vale & Francisco Camões, 2007. "Accelerating Innovation: National R&D Subsidies versus Foreign R&D Tax Credits," Working Papers Series 1 ercwp0108, ISCTE-IUL, Business Research Unit (BRU-IUL).
    • Handle: RePEc:isc:iscwp1:ercwp0108
    as

    Download full text from publisher

    File URL: http://bru-unide.iscte.pt/RePEc/pdfs/ERCwp0108.pdf
    File Function: First version, 2007
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Feenstra, Robert C., 1996. "Trade and uneven growth," Journal of Development Economics, Elsevier, vol. 49(1), pages 229-256, April.
    2. Gian Maria Milesi-Ferrett & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," NBER Working Papers 5317, National Bureau of Economic Research, Inc.
    3. Balasubramanyam, V N & Salisu, M & Sapsford, David, 1996. "Foreign Direct Investment and Growth in EP and IS Countries," Economic Journal, Royal Economic Society, vol. 106(434), pages 92-105, January.
    4. Elberfeld Walter & Götz Georg & Stähler Frank, 2005. "Vertical Foreign Direct Investment, Welfare, and Employment," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-30, February.
    5. Nicholas Bull, 1993. "When all the optimal dynamic taxes are zero," Working Paper Series / Economic Activity Section 137, Board of Governors of the Federal Reserve System (U.S.).
    6. Balcao Reis, Ana, 2001. "On the welfare effects of foreign investment," Journal of International Economics, Elsevier, vol. 54(2), pages 411-427, August.
    7. Barrell, Ray & Pain, Nigel, 1997. "Foreign Direct Investment, Technological Change, and Economic Growth within Europe," Economic Journal, Royal Economic Society, vol. 107(445), pages 1770-1786, November.
    8. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-622, May.
    9. Reis, Ana Balcao, 2006. "Welfare, taxes and foreign investment," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 1045-1061, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Felipa de Mello‐Sampayo & Sofia de Sousa‐Vale & Francisco Camões & Orlando Gomes, 2012. "Protectionism under R&D policy: innovation rate and welfare," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 39(1), pages 106-124, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Felipa de Mello‐Sampayo & Sofia de Sousa‐Vale & Francisco Camões & Orlando Gomes, 2012. "Protectionism under R&D policy: innovation rate and welfare," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 39(1), pages 106-124, January.
    2. Mohamed Saadi, 2011. "Technology Transfer, Foreign Direct Investment, Licensing and the Developing Countries’ Terms of Trade," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 5(4), pages 381-420, November.
    3. Reis, Ana Balcao, 2006. "Welfare, taxes and foreign investment," Journal of Economic Dynamics and Control, Elsevier, vol. 30(6), pages 1045-1061, June.
    4. Gomez, Manuel A., 2007. "Optimal tax structure in a two-sector model of endogenous growth," Journal of Macroeconomics, Elsevier, vol. 29(2), pages 305-325, June.
    5. Balcao Reis, Ana, 2001. "On the welfare effects of foreign investment," Journal of International Economics, Elsevier, vol. 54(2), pages 411-427, August.
    6. Cassou, Steven P. & Lansing, Kevin J., 1998. "Optimal fiscal policy, public capital, and the productivity slowdown," Journal of Economic Dynamics and Control, Elsevier, vol. 22(6), pages 911-935, June.
    7. Manuel Gomez, 2003. "Effects of Flat-Rate Taxes: to What Extent Does the Leisure Specification Matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 404-430, April.
    8. Christoph Braun, 2010. "Taxing Human Capital: A Good Idea," Ruhr Economic Papers 0202, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    9. Kose,Ayhan & Ohnsorge,Franziska Lieselotte & Ye,Lei Sandy & Islamaj,Ergys, 2017. "Weakness in investment growth : causes, implications and policy responses," Policy Research Working Paper Series 7990, The World Bank.
    10. Gian Maria Milesi-Ferretti & Nouriel Roubini, 1995. "Growth Effects of Income and Consumption Taxes: Positive and Normative Analysis," Working Papers 95-18, New York University, Leonard N. Stern School of Business, Department of Economics.
    11. Ulrike Vogelgesang, 2001. "Optimal Capital Income Taxation and Redistribution," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 57(4), pages 412-434, August.
    12. Sbia, Rashid & Shahbaz, Muhammad & Hamdi, Helmi, 2014. "A contribution of foreign direct investment, clean energy, trade openness, carbon emissions and economic growth to energy demand in UAE," Economic Modelling, Elsevier, vol. 36(C), pages 191-197.
    13. Abdul-Aziz Iddrisu & Baba Adam & Babamu Osman Halidu, 2015. "The Influence of Foreign Direct Investment (FDI) on the Productivity of the Industrial Sector in Ghana," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 5(3), pages 1-13, July.
    14. Lewis Davis & Claudia R. Williamson, 2018. "Open Borders for Business? Causes and Consequences of the Regulation of Foreign Entry," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 508-536, October.
    15. Arti Grover, 2005. "Outsourcing Versus Foreign Direct Investment--A Welfare Analysis," Working papers 140, Centre for Development Economics, Delhi School of Economics.
    16. Tang Jenn-Hong, 2020. "Ramsey income taxation in a small open economy with trade in capital goods," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-48, January.
    17. Gall, Thomas & Schiffbauer, Marc & Kubny, Julia, 2014. "Dynamic Effects Of Foreign Direct Investment When Credit Markets Are Imperfect," Macroeconomic Dynamics, Cambridge University Press, vol. 18(8), pages 1797-1831, December.
    18. Claudia Hermeling & Martin Barbie, 2006. "Optimal Taxation in a Simple Model of Human Capital Accumulation," Economics Bulletin, AccessEcon, vol. 5(5), pages 1-8.
    19. Fedderke, J.W. & Romm, A.T., 2006. "Growth impact and determinants of foreign direct investment into South Africa, 1956-2003," Economic Modelling, Elsevier, vol. 23(5), pages 738-760, September.
    20. Samuel Ajayi-Obe, 2020. "Key Determinants of Job Creation: A Comparative analysis between OECD Countries and Emerging Economies," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 619-647, December.

    More about this item

    Keywords

    Endogenous Growth; Foreign Direct Investment; Taxes;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:isc:iscwp1:ercwp0108. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Henrique Monteiro (email available below). General contact details of provider: https://edirc.repec.org/data/uisctpt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.