Research Details

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.

Type

Article

Author(s)

Antoine Dechezlepretre, Elias Einio, Ralf Martin, Kieu-Trang Nguyen, John Van Reenen

Date Published

2023

Citations

Dechezlepretre, Antoine, Elias Einio, Ralf Martin, Kieu-Trang Nguyen, and John Van Reenen. 2023. Do Tax Incentives Increase Firm Innovation? An RD Design for R&D.