Both sides are required:

1- Spending on R&D is crucial for innovation and offering tax breaks definitely would correct the pathway towards innovative products.

2- Without spending, creative persons will leave to who spend (competitors)..while offering tax deductions reflect a government direction so resistance to change would be automatically minimized in all levels.

The most important incentive for innovation is market competition. Hence, governments must refrain from distorting competition.

Further, favourable framework conditions are also needed, comprised of stable macroeconomic conditions, appropriate regulatory regimes, adequate education, science, technology, innovation, investment promotion, regional development, and trade policies, as well as health, environment, transport, urban development, telecommunications, infrastructure development and other policies (via e.g. public procurement) as the "demand side" for innovation activities.

From a different angle, your question is too narrow, as there are many more, and possibly more effective, ways to stimulate innovation activities (than the ones you mentioned).

In case you want to narrow down your analysis just to compare the possible (expected) impacts of those two policy tools you mentioned (disregarding a wide array of other policies), you still need to consider the context, in which these policy tools are devised and implemented. Without that, any answer would be too general (not well substantiated).

Creo que aumentar directamente el gasto público en investigación y desarrollo (I+D) se considera una estrategia más sólida y con mayores beneficios a largo plazo para estimular la innovación que ofrecer exenciones fiscales a las empresas.

Aquí te explico el razonamiento desde esta perspectiva regional:

Prioridad al fortalecimiento de capacidades endógenas: En América Latina, donde históricamente ha existido una dependencia tecnológica de los países desarrollados, la inversión directa del Estado en I+D es crucial para construir capacidades científicas y tecnológicas propias. Esto implica fortalecer las universidades públicas, los centros de investigación y los laboratorios nacionales, creando un ecosistema de innovación que responda a las necesidades específicas de la región.

Enfoque en el desarrollo social y la reducción de desigualdades: lo que priorizaría la investigación que aborde los grandes desafíos sociales de la región, como la pobreza, la desigualdad, la salud pública, la seguridad alimentaria y el cambio climático. El gasto público directo permite orientar la investigación hacia estas áreas críticas, mientras que las exenciones fiscales pueden favorecer la innovación en sectores que no necesariamente tienen un impacto social tan significativo.

Menor riesgo de captura y mayor control democrático: Las exenciones fiscales a menudo benefician principalmente a las grandes empresas, que ya tienen cierta capacidad de inversión en innovación. Esto puede generar un costo fiscal considerable con un impacto marginal en la innovación general y aumentar la desigualdad. El gasto público directo permite un mayor control democrático sobre las prioridades de investigación y asegura que los beneficios se distribuyan de manera más amplia.

Fomento de la colaboración y la difusión del conocimiento: La investigación financiada públicamente tiende a generar conocimiento que es más accesible y puede ser compartido entre diferentes instituciones y empresas, fomentando la colaboración y la creación de redes de innovación. Las exenciones fiscales, en cambio, pueden incentivar la innovación más aislada dentro de las empresas beneficiarias.

Necesidad de una visión de largo plazo y estratégica: El desarrollo de capacidades de I+D requiere una inversión sostenida y una visión estratégica a largo plazo por parte del Estado. Las exenciones fiscales pueden ser más volátiles y depender de las decisiones de inversión de las empresas, que pueden estar influenciadas por factores a corto plazo.

Consideración de las estructuras económicas latinoamericanas: En muchas economías latinoamericanas, la estructura productiva está menos basada en la innovación de punta que en la explotación de recursos naturales o la manufactura de bajo valor agregado. La inversión pública en I+D puede ser una herramienta clave para diversificar la economía, promover sectores de mayor valor añadido y generar empleo de calidad.

Podemos concluir que desde una perspectiva latinoamericana, la inversión directa y estratégica del Estado en I+D es vista como una herramienta más efectiva, equitativa y orientada al desarrollo a largo plazo para estimular la innovación. Si bien las exenciones fiscales podrían tener un papel complementario en ciertos casos, no se consideran la estrategia principal para construir una base de innovación sólida y que responda a las necesidades de la región. Se priorizaría un enfoque que fortalezca las capacidades endógenas, aborde los desafíos sociales y promueva un desarrollo más justo y sostenible.

Andrés Gálvez Rodríguez can you repeat your contribution in English, please?

Of course it's a pleasure Attila Havas…

I believe that directly increasing public spending on research and development (R&D) is considered a more solid strategy with greater long-term benefits for stimulating innovation than offering tax breaks to companies.

Here's the reasoning from this regional perspective:

Prioritize strengthening endogenous capacities: In Latin America, where there has historically been a technological dependence on developed countries, direct state investment in R&D is crucial for building national scientific and technological capacities. This involves strengthening public universities, research centers, and national laboratories, creating an innovation ecosystem that responds to the region's specific needs.

Focus on social development and reducing inequalities: This would prioritize research that addresses the region's major social challenges, such as poverty, inequality, public health, food security, and climate change. Direct public spending allows research to be directed toward these critical areas, while tax breaks can foster innovation in sectors that do not necessarily have such a significant social impact.

Lower risk of capture and greater democratic control: Tax exemptions often primarily benefit large firms, which already have some capacity to invest in innovation. This can generate a considerable fiscal cost with a marginal impact on overall innovation and increase inequality. Direct public spending allows for greater democratic control over research priorities and ensures that the benefits are more widely distributed.

Fostering collaboration and knowledge diffusion: Publicly funded research tends to generate knowledge that is more accessible and can be shared among different institutions and firms, fostering collaboration and the creation of innovation networks. Tax exemptions, on the other hand, can incentivize more isolated innovation within beneficiary firms.

Need for a long-term and strategic vision: Developing R&D capabilities requires sustained investment and a long-term strategic vision on the part of the state. Tax exemptions can be more volatile and depend on firms' investment decisions, which may be influenced by short-term factors.

Consideration of Latin American economic structures: In many Latin American economies, the productive structure is less based on cutting-edge innovation than on the exploitation of natural resources or low-value-added manufacturing. Public investment in R&D can be a key tool for diversifying the economy, promoting higher-value-added sectors, and generating quality employment.

We can conclude that from a Latin American perspective, direct and strategic state investment in R&D is seen as a more effective, equitable, and long-term development-oriented tool for stimulating innovation. While tax exemptions could play a complementary role in certain cases, they are not considered the primary strategy for building a solid innovation base that responds to the region's needs. Priority would be given to an approach that strengthens endogenous capacities, addresses social challenges, and promotes more equitable and sustainable development.

Andrés Gálvez Rodríguez thanks for your structured and detailed arguments. In my understanding, when you are explaining why it is crucial to increase public R&D spending, sometimes explicitly, and other times implicitly, you mention other measures as well that are also indispensable to make publicly funded R&D activities impactful.

This debate is a recurring one in Germany. Project carriers for German Ministries like BMBF or BMWi in particular, argue that tax incentives primarily promote technological diversity in the economy, such as small and medium-sized enterprises with low or no R&D. Research and development grants primarily promote cutting-edge technological research. Both approaches are currently being pursued.