Effectiveness of tax incentives for R & D investment in Spain in the nineties

This article analyses the effectiveness of tax incentives for R&D investment in Spain. In doing so, a representative sample of companies in the manufacturing sector for period 1990-2001 is used. Results confirm that tax credits, and to a lesser degree tax depreciation schemes, are appropriate tools for reducing the user cost of capital in R&D investment. Notwithstanding, the response of investment levels to these price changes is moderate as the elasticities ranges from -0.98 to -1.01. Moreover, for every monetary unit of tax expenditure caused by these tax incentives generates between 1.24 and 1.26 additional monetary units of gross investment. Finally, results show that the connection between productive assets and R&D investment is very weak.