Time to Expand R&D Credit for Large Korean Firms

Technological innovation is the foundation of economic progress, and research and development is the rocket fuel of innovation. That's why governments around the world provide financial support for R&D, both directly through grants and indirectly through tax incentives for companies, big and small.

But as Rob Atkinson writes in The Korea Times, the logic for subsidizing corporate R&D is straightforward: the private rates of return from R&D are much smaller than the public ones. One study found that the median private rate of return from 20 prominent innovations was 27 percent. The median social rate of return, however, was 99 percent, implying substantial spillover effects.

While Korea should do more to equalize the imbalance in how large and small firms are treated for R&D tax credit purposes, there is one step Korea should take with respect to small firms, in this case startups, and that is to make the credit refundable.

The race for global innovation advantage is never over. Korea has performed extremely well in that race over the last two decades. But if it wants to stay near the head of the pack, it needs to keep working at it. Fixing the R&D credit system for large firms is a key way to do that.