Finland’s Ministry of Finance on January 13 announced the results from a research report reviewing the effectiveness of subsidies for research and development (R&D) activity, stating that the results support the use of R&D tax incentives as “proper policy” in Finland.
However, while the report found that open-use R&D subsidies like tax incentives are effective, the researchers concluded that selectively allocating subsidies to businesses with relatively high R&D productivity spurs the most growth.
Selectively targeted subsidies would require distinguishing between businesses with high and low R&D innovation capacity, the researchers noted. The Finance Ministry suggests adopting such a method, noting that “efforts should be made to develop ways to assess innovation capacity” to more efficiently allocate subsidies.
Nonetheless, the researchers acknowledged that, in practice, it would be “impossible to allocate R&D subsidies based entirely on the innovation capability of businesses.” The research was conducted by researchers from the Research Institute of the Finnish Economy ETLA and the VATT Institute for Economic Research.
The Finnish government recently expanded its tax support for R&D through enhanced deductions in the 2022 budget, released last September.
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