R&D Tax Incentive Implementation Rate: A Novel Approach to Analysing Attractiveness of Tax Incentives

Abstract

The article discusses the current methodology used to evaluate relative attractiveness of R&D tax incentives, namely the B-index. It describes the evolution of the methodology, as well as its main limitations and drawbacks. It further suggests a novel complementary approach to analysing the attractiveness of tax incentives taking into consideration the practical implementation of tax incentives. The developed indicator – the tax incentive implementation (utilisation) rate – accounts for countries’ national features of tax incentive systems and reporting on R&D tax expenditures, and allows the generosity of tax incentives to be linked with the actual amount of tax support received by firms. The specific tax incentive implementation rates were computed for 20 European countries, and compared to draw conclusions about the relative efficacy of policy implementation.