Do Tax Incentives for Research Increase Firm Innovation?
Author | : Antoine Dechezleprêtre |
Publisher | : |
Total Pages | : 0 |
Release | : 2016 |
ISBN-10 | : OCLC:1065108780 |
ISBN-13 | : |
Rating | : 4/5 (80 Downloads) |
Book excerpt: 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.