Accelerating Innovation: National R&D Subsidies versus Foreign R&D Tax Credits
Felipa de Mello-Sampayo
Sofia de Sousa-Vale
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.
Endogenous Growth, Foreign Direct Investment, Taxes
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