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Effectiveness of fiscal incentives for R&D: quasi-experimental evidence

Author

Listed:
  • Irem Guceri

    (Oxford University Centre for Business Taxation)

  • Li Liu

    (Oxford University Centre for Business Taxation)

Abstract
With growing academic and policy interest in R&D tax incentives, the question about their effectiveness has become ever more relevant. In the absence of an exogenous policy reform, the simultaneous determination of companies' tax positions and their R&D spending causes an identification problem in evaluating tax incentives. To overcome this problem, we exploit a UK policy reform and use the population of corporation tax records that provide precise information on the amount of firm-level R&D expenditure. Using difference-in-differences and other panel regression approaches, we find a positive and significant impact of tax incentives on R&D spending, and an implied user cost elasticity estimate of around -2.3. This translates to more than a pound in additional private R&D for each pound foregone in corporation tax revenue.

Suggested Citation

  • Irem Guceri & Li Liu, 2015. "Effectiveness of fiscal incentives for R&D: quasi-experimental evidence," Working Papers 1512, Oxford University Centre for Business Taxation.
    • Handle: RePEc:btx:wpaper:1512
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax incentives; corporation tax returns; quasi-experiment;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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