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Do Tax Incentives Increase Firm Innovation? An RD Design for R&D, Patents, and Spillovers

Author

Listed:
  • Antoine Dechezleprêtre
  • Elias Einiö
  • Ralf Martin
  • Kieu-Trang Nguyen
  • John Van Reenen

Abstract

We present causal evidence of R&D tax incentives' positive impacts on a firm's own innovation and that of its technological neighbors. Exploiting a change in size-based eligibility thresholds for R&D tax relief, we implement a Regression Discontinuity Design using administrative data. We find significant effects of tax relief on (quality-adjusted) patenting (and R&D) that persist up to seven years, and evidence of R&D spillovers on the innovation of technologically close firms. We can rule out elasticities of patenting with respect to R&D user cost of under 2 at the 5 percent level and show that our large effects are driven by financially constrained treated firms.

Suggested Citation

  • Antoine Dechezleprêtre & Elias Einiö & Ralf Martin & Kieu-Trang Nguyen & John Van Reenen, 2023. "Do Tax Incentives Increase Firm Innovation? An RD Design for R&D, Patents, and Spillovers," American Economic Journal: Economic Policy, American Economic Association, vol. 15(4), pages 486-521, November.
    • Handle: RePEc:aea:aejpol:v:15:y:2023:i:4:p:486-521
    DOI: 10.1257/pol.20200739
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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