Government support of research and development (R&D) may be appropriate when the social benefits associated with research activities exceed the private benefits. In the absence of such intervention, a market economy would tend to underinvest in research that leads to new ideas, discoveries and knowledge that are helpful in supporting a growing economy. There are numerous ways that governments seek to increase research activity. This paper describes and analyzes one prominent tax expenditure, the research and experimentation (R&E) credit, which encourages businesses in the U.S. to increase investment in research activities. Read More…
