State-level R&D tax credits spur growth of new businesses
Here’s some good news for U.S. states trying to spur an economic recovery in the years ahead: The R&D tax credit has a significant effect on entrepreneurship, according to a new study led by an MIT professor. Moreover, the study finds a striking contrast between two types of tax credits. While the R&D tax credit fuels high-quality new-firm growth, the state-level investment tax credit, which supports general business needs, actually has a slightly negative economic effect on that kind of innovative activity. The underlying reason for the difference, the study’s authors believe, is that R&D tax credits, which are for innovative research and development, help ambitious startup firms flourish. But when states are simply granting investment tax credits, allowing long-established firms to expand, they are supporting businesses with less growth ahead of them, and thus not placing winning policy bets over time. “What we see is an improvement in the environment for entrepreneurship...