Do tax incentives for research increase firm innovation? An RD design for R&D, patents and spillovers

Dechezlepretre, Antoine, Einiö, Elias, Martin, Ralf, Nguyen, Kieu-Trang and Reenen, John Van ORCID: 0000-0001-9153-2907 (2016) Do tax incentives for research increase firm innovation? An RD design for R&D, patents and spillovers. CEP Discussion Paper (1413). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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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.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/Publications/
Additional Information:	© 2016 The Authors, revised 2022
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:	O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O31 - Innovation and Invention: Processes and Incentives O - Economic Development, Technological Change, and Growth > O3 - Technological Change; Research and Development > O32 - Management of Technological Innovation and R&D H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm
Date Deposited:	09 May 2016 15:30
Last Modified:	01 Oct 2025 05:06
Funders:	Economic and Social Research Council, Economic and Social Research Council
URI:	http://eprints.lse.ac.uk/id/eprint/66428

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