Taxation and the Knowledge Economy

Economic growth theory recognises the importance of innovation (or technological development) and tax systems are used in many jurisdictions to encourage innovation through the development, accumulation and exploitation of knowledge. This article considers the theoretical and empirical bases for ‘knowledge economy’ tax incentives and reviews the research literature that analyses effectiveness and outcomes as well as tax anti-avoidance initiatives by the OECD/G20 nations. This article also identifies UK tax policy for the knowledge economy as an example of one jurisdiction facing the challenge of balancing innovation incentives against social and fiscal consequences. Finally, topics for future research are recommended