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Tax Credits and Small Firm R&D Spending

Author

Listed:
  • Ajay Agrawal
  • Carlos Rosell
  • Timothy S. Simcoe

Abstract

In 2004, Canada changed the eligibility rules for its Scientific Research and Experimental Development (SRED) tax credit, which provides tax incentives for R&D conducted by small private firms. Difference in difference estimates show a seventeen percent increase in total R&D among eligible firms. The impact was larger for firms that took the tax credits as refunds because they had no current tax liability. Contract R&D expenditures were more elastic than the R&D wage bill. The response was also greater for firms that invested in R&D capital before the policy change.

Suggested Citation

  • Ajay Agrawal & Carlos Rosell & Timothy S. Simcoe, 2014. "Tax Credits and Small Firm R&D Spending," NBER Working Papers 20615, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20615
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    References listed on IDEAS

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    Cited by:

    1. Antoine Dechezleprêtre & Elias Einiö & Ralf Martin & Kieu-Trang Nguyen & John Van Reenen, 2016. "Do tax Incentives for Research Increase Firm Innovation? An RD Design for R&D," NBER Working Papers 22405, National Bureau of Economic Research, Inc.
    2. Elina Ladinska & Marielle Non & Bas Straathof, 2015. "More R&D with tax incentives? A meta-analysis," CPB Discussion Paper 309, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Jia, Junxue & Ma, Guangrong, 2017. "Do R&D tax incentives work? Firm-level evidence from China," China Economic Review, Elsevier, vol. 46(C), pages 50-66.
    4. Antoine Dechezleprêtre & Elias Einiö & Ralf Martin & Kieu-Trang Nguyen & John Van Reenen, 2016. "Do tax incentives for research increase firm innovation? An RD design for R&D, patents and spillovers," CEP Discussion Papers dp1413, Centre for Economic Performance, LSE.
    5. Irem Guceri, 2018. "Will the real R&D employees please stand up? Effects of tax breaks on firm-level outcomes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 1-63, February.

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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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