London School of Economics
& Political Science (LSE)
London, WC2A 2AE
Institutional Affiliation: London School of Economics
NBER Working Papers and Publications
|July 2016||Do tax Incentives for Research Increase Firm Innovation? An RD Design for R&D|
with , , , : w22405
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 t...