US policy-makers are being advised that having a permanent and well-established R&D tax credit in place will be more effective than having a temporary one.

In its recent report, boutique consultancy firm Pugatch Consilium suggests to policy-makers that R&D tax credits are an effective way for governments to use market-based mechanisms to stimulate private sector R&D investment, and generous R&D tax credits are more likely to increase the innovative capacity of the country.

Evidence shows that by decreasing the cost of R&D – through the use of tax credits – investment in R&D can actually increase both over the long and short term. David Torstensson, a senior consultant at Pugatch Consilium, says: “The report highlights the importance of the federal private sector R&D tax credits and the need to extend the current tax credit to [stimulate] investment.”