An inter-country comparison of the research and development tax credit

Data for a sample of US manufacturing firms are used to develop effective rates of research and development (R&D) credit using the tax provisions for a number of the major industrialized nations. Rates are compared using Analysis of Variance (ANOVA). The effects of the credit on changes in R&D intensity are also evaluated by way of 2 stage least square regression. The reported results show that the US rate of credit is below that of many of its foreign counterparts, such as Japan, Canada, and France. Canada has the most generous rate of credit followed by Japan, France, and lastly the US. The foreign counterparts also offer other tax and non-tax incentives not offered in the US. In addition, the effective rate of the US credit is shown to have a significant effect on changes in R&D intensity of the firm.