On the generosity and effectiveness of the research and development tax credit

In this article, we study the use of the international standard for measuring the generosity of research and development tax subsidies, the B-index, as a predictor of the effectiveness of a subsidy. We find a close relationship, with some modifications of the B-index required. We demonstrate how a synthesis of the B-index and a structural model of a firm's wealth-maximizing behavior can be used to evaluate policy proposals regarding modifications to the research and development tax credit.