State R&D incentive programs such as tax credits are widely used to stimulate innovation, attract investment, and support long-term economic growth. But how do we know which programs truly increase R&D activity rather than simply subsidizing what companies would have done anyway? A recent article by Elizabeth Gray and Alison Wakefield of The Pew Charitable Trusts discusses the role that rigorous evaluation plays in assessing program performance, refining incentive design, and informing better policy decisions.
The article notes that while the federal R&D tax credit has been shown to modestly increase R&D activity nationwide, state-level evaluations produce mixed results. In some cases, the credits worked as intended. In others, they did not. Several state analyses question whether such incentives have meaningfully increased overall R&D investment in their economies. For instance, a 2022 evaluation in Virginia found that although recipient firms increased their R&D spending, the size of the credit was too small to shift state-level R&D activity in a measurable way. And evaluations in Georgia found that most R&D activity in the state would likely have happened even without the credit.
Similar analyses have helped states redesign programs to achieve desired outcomes. For example, Rhode Island and Maryland have programs that specifically incentivize new R&D spending to better align with program goals. After experiencing cost overruns, Nebraska’s evaluation led it to modify its incentive programs to include caps and prorating credits.
According to the authors, these cases illustrate that that evaluation should not be an afterthought but a routine, planned component of incentive programs. Policymakers should:
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Define clear, measurable goals before implementation.
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Establish regular evaluation schedules and allocate resources for analysis.
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Use nonpartisan expertise to ensure credible assessments.
These practices help ensure decisions are grounded in empirical evidence, not assumptions. And because R&D incentives often take years to show results, evaluations must look beyond short-term fiscal impacts to capture long-term effects on innovation and economic growth.