Innovation in Iceland could be strengthened with improved R&D support for smaller firms

More effective support for business R&D would unlock private investment and improve the ability of smaller firms to innovate, according to a new Economic Survey for Iceland made by OECD. It is stated in the survey that Iceland is an innovative country, but nonetheless it has untapped innovation potential. Improving R&D support for businesses is among one of the actions that can be taken to improve innovation in the country.

“Business R&D intensity does not match the rapid increase in tax support for R&D in recent years and innovation outcomes of smaller firms, which are the main beneficiaries of such support, are relatively weak,“ was one of the main findings of the survey. According to the survey, this could be tackled by ensuring that R&D tax-incentives are better targeted to smaller innovative firms.

The survey mentions that the structure of the economy needs to be accounted for when designing R&D policies. The Icelandic economy has large natural resources and service sectors, where firms tend to be less likely to undertake R&D-based innovation. “Innovation outcomes of smaller firms, which are the main beneficiaries of government tax support for R&D, remain relatively weak and the gap between small and large firms is non-negligible.”

Therefore R&D tax incentives should better target smaller innovative firms “through more generous provisions for young innovative firms, on the basis of carefully designed eligibility criteria,” according to the survey, as smaller firms have a harder time accessing finance. Some countries are already specifically targeting young firms and start-ups, countries like France, the Netherlands and Portugal.

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