An increasing number of countries support private R&D activity by fiscal incentives in response to the tightening international tax competition. Consequently, the importance of direct R&D subsidies is diminishing. This paper describes R&D tax incentive mechanisms in OECD countries and surveys the evidence on the effectiveness of tax incentives on R&D. Despite patchy and partly conflicting evidence, tax incentives seem to be efficient in encouraging R&D. However, the efficiency is not exceptional when compared to direct subsidies. Moreover, tax incentives and direct subsidies seem to be substitutes. Tax incentive mechanisms based on the increment of R&D seem to be slightly more efficient than tax incentive mechanisms based on the level of R&D.