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  4. February 2019
  5. Effectiveness of Fiscal Incentives for R&D: Quasi-experimental Evidence

American Economic Journal:
Economic Policy

ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)

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

  • Irem Guceri
  • Li Liu
American Economic Journal: Economic Policy
vol. 11, no. 1, February 2019
(pp. 266–91)
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Abstract

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.

Citation

Guceri, Irem, and Li Liu. 2019. "Effectiveness of Fiscal Incentives for R&D: Quasi-experimental Evidence." American Economic Journal: Economic Policy, 11 (1): 266–91. DOI: 10.1257/pol.20170403

Additional Materials

JEL Classification

  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • H32 Fiscal Policies and Behavior of Economic Agents: Firm
  • K34 Tax Law
  • L25 Firm Performance: Size, Diversification, and Scope
  • O32 Management of Technological Innovation and R&D
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