Do tax incentives for research increase firm innovation? An RD Design for RD

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

No 73, Working Papers from VATT Institute for Economic Research

Abstract: We present the first evidence showing causal impact of research and development (R&D) tax incentives on innovation outcomes. We exploit a change in the asset-based size thresholds for eligibility for R&D tax subsidies and implement a Regression Discontinuity Design using administrative tax data on the population of UK firms. There are statistically and economically significant effects of the tax change on both R&D and patenting, with no evidence of a decline in the quality of innovation. R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design, but firms do adjust assets to take advantage of the subsidy post-policy. We estimate that over 2006-11 business R&D would be around 10% lower in the absence of the tax relief scheme.

Keywords: RD, patents, tax, innovation, Regression Discontinuity design, Economic growth, Taloudellinen kasvu, Taxation, Verotus, H230 - Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies, H250 - Business Taxes and Subsidies including sales and value-added (VAT), H320 - Fiscal Policies and Behavior of Economic Agents: Firm, O310 - Innovation and Invention: Processes and Incentives, O320 - Management of Technological Innovation and RD, (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-acc, nep-eur, nep-ind, nep-ino, nep-pr~, nep-knm, nep-pbe, nep-pub, nep-sbm and nep-tid
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Citations: View citations in EconPapers (54)

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https://www.doria.fi/handle/10024/148730

Related works:
Working Paper: Do tax incentives for research increase firm innovation? An RD design for R&D (2016)
Working Paper: Do tax Incentives for Research Increase Firm Innovation? An RD Design for R&D (2016)
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