Cuts to business R&D support weaken future tax revenue

⚠ Disputed

Confidence: Speculative

Off by default

Shape: Delayed

When research and development support for business (for example Business Finland funding) is cut, firms do less product development, which slows productivity and lowers later profits, wages and tax revenue.

Disputed assumption – may not work this way in reality

Economists disagree whether this effect works, and how strongly.

The evidence on public R&D support is mixed: some studies find a clear increase in firms' own R&D and growth, others find the support replaces investment firms would have made anyway.

Of every 100 euros that a change to “Research and development” saves or brings in, 30 € is lost as revenue on the line “Personal income tax”, starting after 5 yrs and building up to its full size over 8 yrs. (The other way round if the change adds spending or cuts taxes.)

E(t) = s × T(t) × min(1, max(0, (n − delay + 1) / build-up))

Speculative assumption; to be refined from VATT and Business Finland impact evaluations.

How the effect builds up over time

Share of the change's own effect on the balance, year by year while the change continues: −15% means 15% of a saving comes back as cost (or 15% of extra revenue is lost). With the default values.

You can switch the effect on or off and adjust its assumptions in the simulator under Cause-and-effect chains.