(2005) 8(1) 111 REFLECTIONS ON PROVIDING TAX INCENTIVES FOR RESEARCH AND DEVELOPMENT: NEW ZEALAND AT THE CROSS ROADS By Adrian Sawyer ∗ The debate over the effectiveness of tax incentives to stimulate research and development (“R&D”) expenditure has been with us for several decades. The literature is extensive although far from conclusive on the desirability of fiscal incentives for R&D and the measurement of their incremental impact. New Zealand has lagged most members of the OECD in providing fiscal stimuli for R&D expenditure. It was only in the last few years that the tax treatment of R&D was brought largely into line with the financial accounting treatment, permitting further areas of “black hole” expenditure to be deductible for tax purposes. This article provides an overview of the R&D tax incentives for six OECD members that justify consideration by New Zealand, provides a summary of major research findings on the effectiveness of R&D incentives, subsidies and grants, and sets out by way of conclusion recommendations for future consideration, specifically for New Zealand policymakers. ∗ Department of Accountancy, Finance and Information Systems, University of Canterbury, New Zealand. I would like to thank the Royal Society of New Zealand that both commissioned a report and provided a research grant to enable the underlying research that supports this article to be completed and an anonymous referee that provided helpful comments to improve this article. Further details may be obtained from this report, completed in February 2004, which is available via the Royal Society of New Zealand’s website at: http://www.rsnz.org/ . The author also wishes to express his gratitude to his research assistant for her valuable contribution in searching the literature, reading and synthesising the information, and providing him with useful summaries of many of the studies. The research issues discussed in this article reflect those commissioned by the Royal Society of New Zealand.