Impact of R&D tax deductions on companies’ R&D investments and innovations

Impact of R&D tax deductions on companies’ R&D investments and innovations

In Finland, investments to reform the economy and R&D investments in the economy in relation to GDP began to decline as early as the 2010s, and as a result, labor productivity began to decline. The market uncertainty caused by the corona pandemic has increased the riskiness of R&D investments and further reduced the willingness of companies to invest in R&D. Stronger measures are needed to promote growth, which will bring investments in research and development on a growth path and enable high value-added jobs to be maintained.

In OECD countries, R&D tax deductions are widely used to reduce R&D costs and increase incentives for companies to invest in research and development. In Finland, public R&D funding for companies currently covers direct R&D subsidies and loans.

The aim of this research project is to assess the effectiveness of R&D tax deductions and the characteristics and best practices of tax incentive schemes in different countries. Based on previous studies and data analysis, the aim is to outline the features of a suitable R&D tax deduction model for Finland.

The project will initially include a literature review of international studies assessing the effectiveness of R&D tax deductions. In addition, economic methods are used to study the relationship between the characteristics of the various R&D tax incentive schemes in use and companies’ R&D investments and innovation.

This research seeks to answer following research questions:

  1. What can we conclude from international study on the effectiveness of R&D tax incentive schemes?
  2. How do R&D tax incentive schemes differ from country to country, and what are the best practices based on data analysis?

Responsible for research: