A study on R&D expenditure decisions in developing economies: Tax incentives and earnings

• Main Authors: Chan, Wilton A., Gan, Jenna Lynne N., Lucman, Mishari Rashid M., Portugal, Frenz Ralph Philip T.
• Format: text
• Language: English
• Published: Animo Repository 2016
• Subjects: Research and development tax credit; Tax incentives
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/9937
• Institution: De La Salle University

The significant economic externalities of private companies performing R&D justify the provision of special tax incentives, even in developing economies. We provide evidence on the impact of tax incentives and financial constraints on corporate R&D expenditure decisions. Exploiting cross-country differences in Malaysia, Indonesia and the Philippines, we appraise the impact and cost-effectiveness of the R&D tax incentives implemented. We find, for 275 Malaysian firm- years, 68 Indonesian firm-years and 68 Philippine firm-years, that R&D tax incentives of Malaysia have a positive impact on the level of R&D spending and are cost-effective as its credit system induces, on average, $2.005 of additional R&D spending per dollar of taxes forgone. Consistent with the R&D investment model, providing tax incentives in the form of tax credit will decrease financial constraints that may limit the total investments made, and allow more R&D projects to be undertaken. This evidence has important implications for governments to adopt a similar tax policy providing constant incentives that can encourage private R&D investments