Fiscal incentives for R&ampD and innovation in a diverse world

Public policy has an important role to play in promoting research and development (R&ampD) the development, diffusion, and use of new knowledge and innovations. Fiscal incentives, including tax policies, should be directed at specific barriers, impediments or synergies to facilitate the desired level of investment in R&ampD and innovations. Without careful design, policies can have unintended consequences such as favouring incumbent firms, encouraging small firms to undertake less efficient activities, or creating arbitrage and rent-seeking activity. R&ampD tax policy needs to be considered in the context of the country’s general tax policies, its broader innovation policy mix and its other R&ampD support policies. More R&ampD activity in one country does not necessarily result in an overall increase in global innovation if it is simply shifted from another country. More research is needed to determine the extent to which R&ampD fiscal incentives in one country increase overall R&ampD, the quality of that R&ampD, and its positive spillovers to other sectors of the economy and other countries.