R & D tax credits and their macroeconomic impact in the EU : an assessment using QUEST III

R & D tax credits are currently used by 25 Member States as a means to stimulate R & D investment and, ultimately, economic growth and employment. This paper is a first attempt to provide an in-depth analysis of the structural economic factors that, other things being equal, affect or condition the potential macroeconomic impacts of expanding (or start implementing) R & D tax credit schemes. The analysis is based on the European Commission's QUEST III semi-endogenous growth model. Our main conclusion is that, while the short- and medium-term impacts of increased R & D tax credits on Member States' GDP and other macroeconomic aggregates are overall significantly positive, there remains space to substantially improve the cost-effectiveness of these policies.