Effectiveness of Fiscal Incentives for R&D: Quasi-experimental Evidence

By Irem Guceri, Li Liu. American Economic Journal: Economic Policy, 2019

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We exploit a 2008 UK policy reform that increased the tax incentives for R&D in medium-sized enterprises relative to large ones, to overcome the endogeneity of exposure to such tax credits. We estimate a difference-in-difference design on the universe of corporation tax filings in the United Kingdom, combined with other datasets. We find a positive and significant impact of tax credits for R&D, implying a user-cost elasticity estimate of around −1.6. This magnitude implies around $1 in additional private R&D spending per dollar foregone in tax revenue. (JEL H25, H32, K34, L25, O32)

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/dc400fa880a3a993c752b86bdb77b96cc98070f2