Fiscal Policies for Innovation and Growth

Transcription

1 Fiscal Policies for Innovation and Growth CARLOS MULAS-GRANADOS INTERNATIONAL MONETARY FUND ECFIN WORKSHOP JANUARY 24TH,

2 Outline Growth: Three a state of alert pillars of innovation: a role for fiscal policy Research & Development Technology Transfer Entrepreneurship Key findings and policy recommendations 2

3 Growth: a state of alert In the long-term, is innovation what matters 3

4 Potential output projections are disappointing Source: IMF staff estimates. 4

5 Fiscal positions have worsened in the past year Revisions to General Government Gross Debt-to-GDP Ratio, (Rebased debt ratio, index 2007 = 100) Emerging Market and Middle-Income Economies, Excluding China Advanced Economies Low-Income Developing Countries Spring Source: IMF staff estimates. 5

6 What can be done? let s take a long term view United States Real GDP per Capita, (2009 dollars, logarithmic scale) Keynes Bands 40,000 US real GDP per capita Annual growth 2.1% Annual growth 1.4% 4, Sources: US Bureau of Economic Analysis, US Census Bureau, January 2016 WEO. Forecast using January 2016 WEO projections for

7 R&D is key for innovation Sources: US Bureau of Economic Analysis, US Census Bureau, January 2016 WEO. Forecast using January 2016 WEO projections for

8 Research & Development Scope to do more 8

9 R&D around the world Sources: World Bank and IMF staff calculations. 9

10 Total R&D is too low Private R&D, underinvestment due to: Credit constraints especially prevalent during recessions Spillovers Pigou s to the wider economy textbook solution price correction: fiscal incentives to efficiently address externalities 10

11 Fiscal Stabilization can promote R&D in Bad Times Aghion et al: Fiscal stabilization affects TFP growth, as R&D is impaired during recessions due to credit constraints Using a panel of 24 countries (c), 16 industries (j) and 38 years (t), α γ β ϵ Private R&D expenditure External financial dependence cf. Rajan-Zingales Measure of time-varying fiscal stabilization (from previous Fiscal Monitor) Diff-in-diff: interact Fiscal Stabilization with Industries 11

12 Fiscal Stabilization can promote R&D in Bad Times Higher fiscal countercyclicality increases private R&D expenditure. More in industries that are highly dependent on external finance Table. Impact of Fiscal Stabilization on Private Research and Development Source: IMF staff calculations and estimates.note: Estimates are based on equation (A2.1.3). The t-statistics based on clustered standard errors at country-industry level are reported in parentheses. Country-time fixed effects are included in all regressions, industry fixed effects in (1) and (3), and industry-country fixed effects in (2) and (4). Differential in research and development computed for an industry with external financial dependence at the 75th percentile relative to the 25th percentile of the financial dependence distribution when the country increases fiscal stabilization from the 25th to the 75th percentile.*** p <

13 R&D externalities justify a Pigouvian subsidy Domestic social returns are at least 2 x private returns Correction 50% Today subsidies 10% Required effort 40% 13

14 Scaling up fiscal incentives can yield a major growth dividend 0.4 percent of GDP fiscal cost R&D Tax credits R&D Subsidies Effective Design Critical 40 percent cost reduction of extra R&D for firms 40 percent increase in private R&D investment 5 percent higher GDP from domestic spillovers 8 percent higher global GDP with crossborder spillovers Note: estimates are averages across OECD countries. 14

15 Two key fiscal instruments to promote private R&D Direct R&D Fiscal Support to Private R&D, 2013 (percent of GDP) R&D subsidies tax incentives 15

16 Examples of R&D tax incentives Targeting small or new firms? Small firms: Canada, the Netherlands, Norway, and the United Kingdom New firms: Belgium, France, Italy, the Netherlands, and Portugal Tax credits or Tax reliefs? Simple or incremental incentives? R&D Tax credits: refundable tax credits are more appropriate for start-ups Tax relief from other taxes: Belgium, France, Hungary, the Netherlands, and Spain Incremental: cheaper (Italy, Japan, Korea, Portugal, Spain, and the United States) Simple: easier to monitor and don t influence the timing of investment 16

17 Which works better? Subsidies or tax incentives? Using firm-level (and sectoral) data, estimate a diff-in-diff: ΔLog γ. Firm characteristics (size, sector) Fiscal support for private R&D - Subsidies - Tax incentives Mixed results on effect of subsidies versus tax incentives Maybe tax incentives stronger effect 17

18 Which works better? Subsidies or tax incentives? 18

19 Which works better? Subsidies or tax incentives? Mixed results on effect of subsidies versus tax incentives (as in literature) 19

20 Which works better? Subsidies or tax incentives? 20

21 Patent box? No! Synthetic Control Estimation Results: Intellectual Property Box and Private R&D (Log of real R&D spending) Actual Synthetic Control 0.4 IP box ineffective 3. Belgium Reform Reform IP box ineffective Only effective where tax relief is large and link with R&D strong Ineffective no effect at all in two countries 2. Spain France 4. Netherlands IP box effective, but costly IP box effective, but costly 0.0 Inefficient as relief depends on income, not R&D Negative international spillovers focus is on attracting mobile IP income (aggressive tax competition) 0.0 Reform Reform Source: IMF staff estimates. Note: Estimates, based on the synthetic control method. The synthetic control mimics the R&D development in the country before the introduction of its IP box. The actual line shows how R&D deviates from the control after the introduction of the IP box. In France and Spain, there is no impact; in Belgium and the Netherlands, the impact of the IP box on R&D is positive, but the revenue cost quite significant. 21

22 Key findings and policy recommendations R&D scope to do more and better Fiscal stabilization matters, also for long-run growth R&D incentives: GDP could rise by 5 percent; impact can be 8 percent if international spillovers are taken into account Both tax incentives and direct subsidies work Design matters: e.g. no patent box 22

23 THANK YOU! 23