Analysis of the Effects of Changes in the Japanese R&D Tax Credit System in 2015: Impact of expansion of tax credits for open innovation and abolition of the tax credit carryover system

The purpose of this study is to empirically analyze the effect of changes in the Japanese R&D tax system implemented in 2015 on the quantity and quality of R&D investment. As a result of analysis using counter-factual simulation, it was found that the abolition of the tax credit carryover system and the expansion of tax credits for open innovation (OI) in 2015 contributed to the decrease in total R&D investment and the increase in external expenditure R&D investment, respectively. Regarding the tax revenue, the increase in tax revenue due to the abolition of the tax credit carryover system was almost equal to the decrease in R&D investment, and the decrease in tax revenue due to the expansion of tax credits for OI was smaller than the increase in external R&D investment. In addition, the negative effect of the abolition of the tax credit carryover system and the positive effect of the expansion of tax credits for OI almost offset each other, and it seems that there was no significant effect on the labor productivity as a whole. The expansion of tax credits for OI in 2015 had the effect of increasing the number of industry-academia joint application patents. As a conclusion, the system changes in the R&D tax system in 2015 had the effect of promoting open innovation such as joint research between industry and academia and boosting productivity, but at the same time, R&D investment was reduced by abolishing the tax credit carryover system.