## Agglomeration, Innovation, and Spatial Reallocation: The Aggregate Effects of R&D Tax Credits

_IMF Working Papers, July 1, 2022_

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## Bibliographic details
- Authors: Alexandre Sollaci
- Published: July 1, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400212666.001

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### Research question and approach
- Investigates the aggregate effects of R&D tax credits in the US.
- Models the policy channel: R&D tax credits subsidize R&D activity and credit rates vary between states, generating spatial and dynamic effects.
- Framework: constructs an endogenous growth model with spatial heterogeneity and agglomeration spillovers in innovation.
- Key mechanism: aggregate outcomes depend on the spatial distribution of the population, which is endogenous and reacts to policy.

### Main findings
- R&D tax credits have both spatial effects (through variation in state credit rates) and dynamic effects (through innovation subsidies).
- Agglomeration spillovers in innovation imply that where R&D activity locates matters for aggregate outcomes.
- The endogenous distribution of population amplifies or attenuates aggregate effects because population location responds to R&D subsidy policies.

### Policy implications and recommendations
- Optimal policy design should account for spatial heterogeneity: local R&D subsidies can be tailored to maximize aggregate welfare.
- Identifies a set of local R&D subsidies that maximize aggregate welfare within the model framework.

### Model features and assumptions
- Endogenous growth model with:
  - Spatial heterogeneity.
  - Agglomeration spillovers in innovation.
  - Endogenous population distribution that responds to policy.
- Policy instrument analyzed: R&D tax credits / R&D subsidy rates varying across states.

### Subjects and keywords
- Subjects: Credit ratings, Labor, Money, Population and demographics, Production, Productivity, Tax allowances, Taxes, Wages.
- Keywords: agglomeration, aggregate outcome, Credit ratings, elasticity of agglomeration, elasticity of congestion, Global, innovation, Productivity, R&D activity, R&D subsidy, R&D tax credit rate, R&D tax credits, Tax allowances, Wages, welfare effect.

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_Source: https://www.imf.org/en/publications/wp/issues/2022/07/01/agglomeration-innovation-and-spatial-reallocation-the-aggregate-effects-of-r-d-tax-credits-520254_