Do tax incentives for research increase firm innovation? An RD design for R&D, patents and spillovers

Antoine Dechezleprêtre, Elias Einiö, Ralf Martin, Kieu-Trang Nguyen and John van Reenen

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We present evidence of the positive causal impacts of research and development (R&D) tax incentives on a firm's own innovation and that of its technological neighbors (spillovers). Exploiting a change in the assets-based size thresholds that determine eligibility for R&D tax relief, we implement a Regression Discontinuity (RD) Design using administrative data. We find statistically and economically significant effects of tax relief on (quality-adjusted) patenting (and R&D) that persist up to seven years after the change. Moreover, we also find causal evidence of R&D spillovers on the innovation of technologically close peer firms. We can rule out elasticities of patenting with respect to the user cost of R&D of under 2 at the 5% level and show evidence that our large effects are likely because the treated group are more likely to be financially constrained.

Keywords: R&D; patents; tax; innovation; Regression Discontinuity Design (search for similar items in EconPapers)
JEL-codes: H23 H25 H32 O31 O32 (search for similar items in EconPapers)
Date: 2016-03-11
New Economics Papers: this item is included in nep-acc, nep-eur, nep-ino, nep-pbe, nep-pub and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (67)

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Working Paper: Do tax incentives for research increase firm innovation? An RD design for R&D, patents and spillovers (2016)
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