Do tax Incentives for Research Increase Firm Innovation? An RD Design for R&D

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

No 22405, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present evidence of a causal impact of research and development (R&D) tax incentives on innovation. 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 (even when quality-adjusted). R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population of smaller firms and subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design. Over the 2006-11 period aggregate business R&D would be around 10% lower in the absence of the tax relief scheme. We also show that the R&D generated by the tax policy creates positive spillovers on the innovations of techno-logically related firms.

JEL-codes: O31 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-acc, nep-eur, nep-ino, nep-pbe, nep-sbm and nep-tid
Note: PR
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Citations: View citations in EconPapers (90)

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