Effectiveness of Fiscal Incentives for R&D: Quasi-Experimental Evidence
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Summary:
With growing academic and policy interest in research and development (R&D) tax incentives, the question about their effectiveness has become ever more relevant. In the absence of an exogenous policy reform, the simultaneous determination of companies’ tax positions and their R&D spending causes an identification problem in evaluating tax incentives. To overcome this identification challenge, we exploit a U.K. policy reform and use the population of corporation tax records that provide precise information on the amount of firm-level R&D expenditure. Using difference-in-differences and other panel regression approaches, we find a positive and significant impact of tax incentives on R&D spending, and an implied user cost elasticity estimate of around -1.6. This translates to more than a pound in additional private R&D for each pound foregone in corporation tax revenue.
Series:
Working Paper No. 2017/084
Subject:
Economic sectors Expenditure Marginal effective tax rate Small and medium enterprises Tax allowances Tax incentives Tax policy Taxes
English
Publication Date:
March 31, 2017
ISBN/ISSN:
9781475591170/1018-5941
Stock No:
WPIEA2017084
Pages:
43
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