The effects of state R&D tax credits in stimulating private R&D expenditure: A cross-state empirical analysis

Abstract

This is a cross-state empirical study which examines the effects of state research and development (R&D) tax credits on private R&D expenditure in the states. Other explanatory variables include federal R&D subsidies, public services in higher education and R&D-targeted programs as well as other control variables. The statistical result shows that the establishment of state R&D credit programs is effective in stimulating more industrial R&D expenditure. In addition, state services in higher education and R&D-targeted programs also matter in private decision of R&D investment. This policy assessment sends a positive message to state policymakers because it shows the great potential in using R&D policy instruments to promote innovation-based economic development. © 2005 by the Association for Public Policy Analysis and Management.