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Evaluating the impact of R&D tax credits on innovation: A microeconometric study on Canadian firms

  • Czarnitzki, Dirk
  • Hanel, Petr
  • Rosa, Julio Miguel

This study examines the effect of R&D tax credits on innovation activities of Canadian manufacturing firms. Over the 1997-1999 period the Federal and Provincial R&D tax credit programs were used by more than one third of all manufacturing firms and by close to two thirds of firms in high-technology sectors. We investigate the average effect of R&D tax credits on a series of innovation indicators such as: number of new products, sales with new products, originality of innovation, etc. using a non-parametric matching approach. Compared to a hypothetical situation in the absence of R&D tax credits, recipients of tax credits show significantly better scores on most but not all performance indicators. We therefore conclude that tax credits lead to additional innovation output.

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Article provided by Elsevier in its journal Research Policy.

Volume (Year): 40 (2011)
Issue (Month): 2 (March)
Pages: 217-229

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Handle: RePEc:eee:respol:v:40:y:2011:i:2:p:217-229
Contact details of provider: Web page: http://www.elsevier.com/locate/respol

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  1. Michael Lechner, 2000. "An Evaluation of Public-Sector-Sponsored Continuous Vocational Training Programs in East Germany," Journal of Human Resources, University of Wisconsin Press, vol. 35(2), pages 347-375.
  2. Dietmar Harhoff, 1997. "Are There Financing Constraints for R&D and Investment in German Manufacturing Firms?," CIG Working Papers FS IV 97-45, Wissenschaftszentrum Berlin (WZB), Research Unit: Competition and Innovation (CIG).
  3. Paul A. David, Bronwyn H. Hall and Andrew A. Toole., 1999. "Is Public R&D a Complement or Substitute for Private R&D? A Review of the Econometric Evidence," Economics Working Papers E99-269, University of California at Berkeley.
  4. Bronwyn H. Hall, 2003. "The Financing of Research and Development," Finance 0303003, EconWPA.
  5. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," NBER Working Papers 6699, National Bureau of Economic Research, Inc.
  6. Brian Cozzarin, 2004. "Innovation quality and manufacturing firms' performance in Canada," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(3), pages 199-216.
  7. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
  8. Almus, Matthias & Czarnitzki, Dirk, 2003. "The Effects of Public R&D Subsidies on Firms' Innovation Activities: The Case of Eastern Germany," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 226-36, April.
  9. Petr Hanel, 2003. "Impact Of Government Support Programs On Innovation By Canadian Manufacturing Firms," Cahiers de recherche 04-02, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  10. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  11. Petr Hanel & Alain St-Pierre, 2002. "Effects of R & D Spillovers on the Profitability of Firms," Review of Industrial Organization, Springer, vol. 20(4), pages 305-322, June.
  12. Czarnitzki, Dirk, 2002. "Research and development: financial constraints and the role of public funding for small and medium-sized enterprises," ZEW Discussion Papers 02-74, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  13. Czarnitzki, Dirk & Kraft, Kornelius, 2000. "An empirical test of the asymmetric models on innovative activity: who invests more into R&D - the incumbent or the challenger?," ZEW Discussion Papers 00-10, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  14. Hanel, P. & Palda, K., 1990. "Appropriability and Public Support of R&D in Canada," Papers 90-02, Quebec a Montreal - C.R.E.D.I.T..
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  16. Hall, Bronwyn & Van Reenen, John, 2000. "How effective are fiscal incentives for R&D? A review of the evidence," Research Policy, Elsevier, vol. 29(4-5), pages 449-469, April.
  17. Lechner, Michael, 1999. "Earnings and Employment Effects of Continuous Off-the-Job Training in East Germany after Unification," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 74-90, January.
  18. Collins, Norman R & Preston, Lee E, 1969. "Price-Cost Margins and Industry Structure," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 271-86, August.
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  20. Robert E. Carpenter & Bruce C. Petersen, 2002. "Is The Growth Of Small Firms Constrained By Internal Finance?," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 298-309, May.
  21. Klette, T.J. & Moen, J. & Griliches, Z., 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconometric Evaluation Studies," Papers 16/99, Norwegian School of Economics and Business Administration-.
  22. Dagenais, M. & Mohnen, P. & Therrien, P., 1997. "Do Canadian Firms Respond to Fiscal Incentives To Research and Development?," G.R.E.Q.A.M. 97b05, Universite Aix-Marseille III.
  23. Rajeev H. Dehejia & Sadek Wahba, 1998. "Causal Effects in Non-Experimental Studies: Re-Evaluating the Evaluation of Training Programs," NBER Working Papers 6586, National Bureau of Economic Research, Inc.
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  25. Ravenscraft, David J, 1983. "Structure-Profit Relationships at the Line of Business and Industry Level," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 22-31, February.
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