Rewarding Innovation: Improving Federal Tax Support for Business R&D in Canada

28 Pages Posted: 19 Oct 2011

See all articles by Mark Parsons

Mark Parsons

affiliation not provided to SSRN

Date Written: September 22, 2011

Abstract

Business innovation is viewed by many as a solution to Canada’s ailing productivity performance. One of the more troubling aspects of Canada’s innovation track record is that businesses spend relatively little on research and development (R&D) despite having access to some of the world’s most generous R&D tax incentives. Canada’s low levels of business R&D have called into question the effectiveness of Canada’s generous R&D tax incentives, particularly the flagship federal Scientific Research and Experimental Development (SR&ED) program. A deeper analysis, however, reveals that tax incentives are effective in stimulating more R&D – that is, Canada would have lower levels of business R&D in the absence of these inducements. Instead, the root cause of Canada’s business R&D deficit appears to stem from structural aspects of the economy and, more importantly, a lack of demand-related pressure to pursue innovation.

Keywords: Fiscal and Tax Competitiveness, Canada, research and development (R&D) incentives, Scientific Research and Experimental Development (SR&ED) program

JEL Classification: H2, H59, O38

Suggested Citation

Parsons, Mark, Rewarding Innovation: Improving Federal Tax Support for Business R&D in Canada (September 22, 2011). C.D. Howe Institute. Available at SSRN: https://ssrn.com/abstract=1945951 or http://dx.doi.org/10.2139/ssrn.1945951

Mark Parsons (Contact Author)

affiliation not provided to SSRN ( email )

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