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Do tax incentives for research increase firm innovation? An RD design for R&D

Dechezlepretre, Antoine, Einiö, Elias, Martin, Ralf, Nguyen, Kieu-Trang and Reenen, John Van (2016) Do tax incentives for research increase firm innovation? An RD design for R&D. CEP Discussion Paper (1413). Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

We present the first evidence showing causal impact of research and development (R&D) tax incentives on innovation outcomes. 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, with no evidence of a decline in the quality of innovation. R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design, but firms do adjust assets to take advantage of the subsidy post-policy. We estimate that over 2006-11 business R&D would be around 10% lower in the absence of the tax relief scheme.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2016 The Authors
Divisions: Grantham Research Institute
Centre for Economic Performance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
JEL classification: J - Labor and Demographic Economics > J2 - Time Allocation, Work Behavior, and Employment Determination and Creation; Human Capital; Retirement > J24 - Human Capital; Skills; Occupational Choice; Labor Productivity
M - Business Administration and Business Economics; Marketing; Accounting > M0 - General
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 09 May 2016 15:30
Last Modified: 30 Jan 2019 12:28
Funders: Economic and Social Research Council, Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/66428

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