The Case Against Tax Subsidies in Innovation Policy

54 Pages Posted: 24 Apr 2020 Last revised: 4 May 2020

Date Written: March 31, 2020

Abstract

Intellectual property (IP) scholars propose replacing IP rights with tax subsidies for firms that invest in research and development (R&D). Economic models that presume full access to perfect information, and that assume the intentions of policymakers to be benevolent, serve as the meta-rationale for this policy. Based on developments in institutional economics, this article shows that information problems concerning the operationalization of tax subsidies in the IRC are insurmountable.

Innovation is the outcome of an unpredictable market process. It cannot be steered in advance of market competition. Based on public choice theory, the article also argues that tax subsidies for innovation are particularly vulnerable to rent-seeking and that tax dollars will often be captured by the politically powerful —not by disruptive newcomers. Economic realism shows that innovation is best promoted indirectly by securing the background institutions that facilitate competition and entrepreneurship. Thus, the best innovation policy is to support stable, simple, and general intellectual property rights. This is therefore the first article, amid growing scholarly consensus concerning subsidies as the new innovation tool, to present both a full-blown critique and a radical alternative. In contrast to innovation scholarship that is often animated by assumptions of perfect information and benevolent policymakers, this article shows the superiority of the property-approach under imperfect conditions.

Keywords: Research and Development Tax Credit, Intellectual Property (Ip), Tax Subsidies, Innovation Policy

JEL Classification: K00, K34

Suggested Citation

Delmotte, Charles, The Case Against Tax Subsidies in Innovation Policy (March 31, 2020). Florida State University Law Review, Vol. 48, No. 2, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3564793 or http://dx.doi.org/10.2139/ssrn.3564793

Charles Delmotte (Contact Author)

NYU School of Law ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
53
Abstract Views
321
rank
404,197
PlumX Metrics