The Effects of Compliance Costs on Global R&D Tax Incentives

Open Access
Author:
Richter, Stefan Josef
Area of Honors:
Accounting
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Rick C Laux, Thesis Supervisor
  • Orie Edwin Barron, Honors Advisor
Keywords:
  • R&D Tax Incentives
  • Compliance Costs
  • Taxation
  • Accounting
Abstract:
In this study, tax compliance costs are incorporated into previous research that analyzed and compared 28 countries’ tax incentives for encouraging private investment in research and development (R&D). R&D has proven to provide substantial economic benefits to the country in which it takes place, but R&D creates positive externalities in that the firm conducting the research does not fully receive all of the benefits. Therefore, firms may invest below the optimal amount of R&D. Because of this potential underinvestment and given the benefits to a country’s economy, governments provide incentives to encourage firms to conduct greater amounts of R&D. Tax benefits are a common incentive that governments use to do this. The substantial differences between each country’s tax incentive systems make it difficult to compare the relative benefits among countries. Consequently, previous researchers have developed the B-Index, which provides a quantitative measure of how beneficial each country’s R&D tax incentives are in relation to one another. Even though the B-Index incorporates many elements of R&D tax incentives, compliance costs that firms incur to obtain R&D tax benefits are not included in the formula. Firms often cite complex tax regulations and high compliance costs as barriers to obtaining these R&D tax benefits. In this study, previous research and data are combined to develop estimates for compliance costs on a country by country basis. These compliance costs are then incorporated into the B-Index. Despite the fact that firms often cite high compliance costs, I find the costs affect the ranking of countries’ R&D tax incentives in a negligible amount.