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Research Details

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

Abstract

We present the first 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 R&D, (quality-adjusted) patenting and ultimately firm size that persist up to seven years after the change. We can rule out R&D tax price elasticities of under 1.1 at the 5% level and argue that our large effects are likely because the treated group are smaller firms that are more likely to be financially constrained. Using our RD Design, we also find causal impacts on technologically close peer firms, implying significant under-investment in R&D from a social perspective.

Type

Working Paper

Author(s)

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

Date Published

2020

Citations

Dechezlepretre, Antoine, Elias Einio, Ralf Martin, Kieu-Trang Nguyen, and John Van Reenen. 2020. Do Tax Incentives Increase Firm Innovation? An RD Design for R&D.

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