InvestIng In InnovatIon - OECD.org
4.1 • Investing in innovation – Firms investing in R&D Innovation requires a wide array of public and private investments. However, private investment in R&D and innovation may be below a socially optimal level, mainly because returns are uncertain or the innovator cannot appropriate all the benefits. Governments play an important role in fostering investment in R&D and innovation.
Business enterprise expenditure on R&D, 2008 As a percentage of GDP
Did you know? 22 OECD governments provide fiscal incentives to support business R&D.
1998
(OECD, R&D tax incentives project, 2010.)
Israel Sweden (1999-2008)
Business enterprise expenditure on R&D (BERD) is considered important for innovation and economic growth. It has frequently been used to compare countries’ private-sector efforts on innovation. For OECD countries, business R&D accounted for 1.65% of GDP in 2008, slightly more than in 1998 (1.45% of GDP).
Finland Japan (1998-2007) Korea Switzerland (2000-08) United States Singapore
Governments can choose among various tools to leverage private-sector R&D. They can offer firms direct support via grants or procurement or they can use fiscal incentives, such as R&D tax incentives. Direct R&D grants/subsidies target specific projects with high potential social returns; tax credits reduce the marginal cost of R&D activities and allow private firms to choose which projects to fund.
Denmark Austria Germany OECD Iceland Belgium Luxembourg (2000-08) France
Countries differ in their use of direct and indirect support. The United States (through competitive R&D contracts) and Spain rely more on direct support, while Canada and Japan mostly use indirect support to foster industrial R&D. The optimal balance of direct and indirect R&D support varies from country to country, as each tool addresses different market failures and stimulates different types of R&D. For instance, tax credits mostly encourage short-term applied research, while direct subsidies affect more long-term research. A new indicator of this policy mix has been developed and gives a rather different picture of international comparisons of public support to R&D.
Australia (1998-2006) EU27 United Kingdom Slovenia China (1998-2007) Canada Ireland Czech Republic Netherlands Norway (1999-2008) Portugal Spain Russian Federation Italy South Africa (2001-07) Hungary New Zealand (1999-2007) Turkey Slovak Republic Poland Mexico (1998-2007) Romania
Definitions
Greece (1999-2007) Argentina (1998-2007) 0
1
2
3
4
Source: OECD, Main Science and Technology Indicators Database, March 2010. See chapter notes.
5 %
Government direct R&D funding includes grants, loans and procurement. Government indirect R&D funding includes tax incentives such as R&D tax credits, R&D allowances, reductions in R&D workers’ wage taxes and social security contributions, and accelerated depreciation of R&D capital.
1 2 http://dx.doi.org/10.1787/835805814452
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MEASURING INNOVATION: A NEW PERSPECTIVE © OECD 2010
Firms investing in R&D – Investing in innovation • 4.1 Direct and indirect government funding of business R&D and tax incentives for R&D, 2007 As a percentage of GDP Direct government funding of BERD
Indirect government support through R&D tax incentives
% 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05
ia Fin lan d ay (2 Un 00 ite 8) dK G in g erm an do y m (2 Ice lan 0 08 ) d( 20 08 ) Be Lu lgiu m xe mb De nm o ark urg (2 00 8) Hu Au ng str a ali ry a( 20 06 ) Ire lan Ne w d Ze ala nd Sw itz erl an Italy d( 20 08 ) Slo Ja p va a n kR T ep ub urke y lic (2 00 Ne 8 ) the r Ca na land da s (2 00 8) Po rtu ga l Po lan d M Gr ee exic o ce (2 00 5)
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Source: OECD, based on OECD, R&D tax incentives questionnaire, January 2010; and OECD, Main Science and Technology Indicators Database, March 2010. See chapter notes. 1 2 http://dx.doi.org/10.1787/835805814452
Measurability Direct government funding of R&D is the amount of business R&D funded by the government as reported by firms. It is the sum of different components (contracts, loans, grants/subsidies) with different impacts on the cost of performing R&D. R&D grants and loans decrease the cost of performing R&D, but contracts (usually awarded through competitive bidding) do not directly affect the cost of performing R&D. More information on the different components is needed to better understand the impact of direct R&D support on firms’ performance. While information on total government direct support is available at both national and international levels, this is usually not the case for R&D-related tax expenditures. Their omission from measures of governmentfinanced R&D leads to incomplete indicators of public R&D support. To gain a more complete view, the OECD developed a questionnaire to collect information on countries’ R&D tax incentive schemes and to estimate the cost of such R&D tax incentives. Countries’ R&D schemes differ. Most countries provide fiscal incentives through tax credits or allowances and capital expensing. In Belgium, France, Korea and Spain, additional fiscal incentives are provided through reductions in R&D workers’ wage taxes and social security contributions. In some countries, the reported cost of tax incentives differs from the real cost. For instance, Austria has both an R&D tax credit and R&D allowances but only reports the cost of the R&D tax credit. Belgium’s tax incentives cover R&D expenditures but also include a deduction for patent income. When possible and to improve international comparability, figures are adjusted to meet the internationally accepted definition of R&D. The OECD is working to compare countries’ R&D schemes and methodologies and to assess factors that affect the overall cost (inclusion of sub-national R&D tax credits, differences in firm eligibility, etc.).
MEASURING INNOVATION: A NEW PERSPECTIVE © OECD 2010
77
Business enterprise expenditure on R&D, 2008 As a percentage of GDP
Did you know? 22 OECD governments provide fiscal incentives to support business R&D.
1998
(OECD, R&D tax incentives project, 2010.)
Israel Sweden (1999-2008)
Business enterprise expenditure on R&D (BERD) is considered important for innovation and economic growth. It has frequently been used to compare countries’ private-sector efforts on innovation. For OECD countries, business R&D accounted for 1.65% of GDP in 2008, slightly more than in 1998 (1.45% of GDP).
Finland Japan (1998-2007) Korea Switzerland (2000-08) United States Singapore
Governments can choose among various tools to leverage private-sector R&D. They can offer firms direct support via grants or procurement or they can use fiscal incentives, such as R&D tax incentives. Direct R&D grants/subsidies target specific projects with high potential social returns; tax credits reduce the marginal cost of R&D activities and allow private firms to choose which projects to fund.
Denmark Austria Germany OECD Iceland Belgium Luxembourg (2000-08) France
Countries differ in their use of direct and indirect support. The United States (through competitive R&D contracts) and Spain rely more on direct support, while Canada and Japan mostly use indirect support to foster industrial R&D. The optimal balance of direct and indirect R&D support varies from country to country, as each tool addresses different market failures and stimulates different types of R&D. For instance, tax credits mostly encourage short-term applied research, while direct subsidies affect more long-term research. A new indicator of this policy mix has been developed and gives a rather different picture of international comparisons of public support to R&D.
Australia (1998-2006) EU27 United Kingdom Slovenia China (1998-2007) Canada Ireland Czech Republic Netherlands Norway (1999-2008) Portugal Spain Russian Federation Italy South Africa (2001-07) Hungary New Zealand (1999-2007) Turkey Slovak Republic Poland Mexico (1998-2007) Romania
Definitions
Greece (1999-2007) Argentina (1998-2007) 0
1
2
3
4
Source: OECD, Main Science and Technology Indicators Database, March 2010. See chapter notes.
5 %
Government direct R&D funding includes grants, loans and procurement. Government indirect R&D funding includes tax incentives such as R&D tax credits, R&D allowances, reductions in R&D workers’ wage taxes and social security contributions, and accelerated depreciation of R&D capital.
1 2 http://dx.doi.org/10.1787/835805814452
76
MEASURING INNOVATION: A NEW PERSPECTIVE © OECD 2010
Firms investing in R&D – Investing in innovation • 4.1 Direct and indirect government funding of business R&D and tax incentives for R&D, 2007 As a percentage of GDP Direct government funding of BERD
Indirect government support through R&D tax incentives
% 0.40 0.35 0.30 0.25 0.20 0.15 0.10 0.05
ia Fin lan d ay (2 Un 00 ite 8) dK G in g erm an do y m (2 Ice lan 0 08 ) d( 20 08 ) Be Lu lgiu m xe mb De nm o ark urg (2 00 8) Hu Au ng str a ali ry a( 20 06 ) Ire lan Ne w d Ze ala nd Sw itz erl an Italy d( 20 08 ) Slo Ja p va a n kR T ep ub urke y lic (2 00 Ne 8 ) the r Ca na land da s (2 00 8) Po rtu ga l Po lan d M Gr ee exic o ce (2 00 5)
en
str
rw
No
ed
Sw
Au
li c
a in
ub
ep
Sp
)
8)
00
(2
rea
hR
ec Cz
00
08
Ko
(2
e(
nc
es tat
Fra
Un
ite
dS
20
8)
0.00
Source: OECD, based on OECD, R&D tax incentives questionnaire, January 2010; and OECD, Main Science and Technology Indicators Database, March 2010. See chapter notes. 1 2 http://dx.doi.org/10.1787/835805814452
Measurability Direct government funding of R&D is the amount of business R&D funded by the government as reported by firms. It is the sum of different components (contracts, loans, grants/subsidies) with different impacts on the cost of performing R&D. R&D grants and loans decrease the cost of performing R&D, but contracts (usually awarded through competitive bidding) do not directly affect the cost of performing R&D. More information on the different components is needed to better understand the impact of direct R&D support on firms’ performance. While information on total government direct support is available at both national and international levels, this is usually not the case for R&D-related tax expenditures. Their omission from measures of governmentfinanced R&D leads to incomplete indicators of public R&D support. To gain a more complete view, the OECD developed a questionnaire to collect information on countries’ R&D tax incentive schemes and to estimate the cost of such R&D tax incentives. Countries’ R&D schemes differ. Most countries provide fiscal incentives through tax credits or allowances and capital expensing. In Belgium, France, Korea and Spain, additional fiscal incentives are provided through reductions in R&D workers’ wage taxes and social security contributions. In some countries, the reported cost of tax incentives differs from the real cost. For instance, Austria has both an R&D tax credit and R&D allowances but only reports the cost of the R&D tax credit. Belgium’s tax incentives cover R&D expenditures but also include a deduction for patent income. When possible and to improve international comparability, figures are adjusted to meet the internationally accepted definition of R&D. The OECD is working to compare countries’ R&D schemes and methodologies and to assess factors that affect the overall cost (inclusion of sub-national R&D tax credits, differences in firm eligibility, etc.).
MEASURING INNOVATION: A NEW PERSPECTIVE © OECD 2010
77
