Working Paper: NBER ID: w22405
Authors: Antoine Dechezleprêtre; Elias Eini; Ralf Martin; Kieutrang Nguyen; John Van Reenen
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.
Keywords: R&D tax incentives; firm innovation; regression discontinuity design; patenting activity
JEL Codes: O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R&D expenditures (O32) | patenting activity (O34) |
| R&D tax incentives (O32) | quality of innovations (L15) |
| R&D tax incentives (O32) | elasticity of R&D with respect to tax-adjusted user cost (H32) |
| R&D tax incentives (O32) | R&D expenditures (O32) |
| R&D tax incentives (O32) | patenting activity (O34) |
| R&D tax incentives (O32) | innovation (O35) |