Seminar – Do Tax Incentives for Research Increase Firm Innovation? An RD Design for R&D

Dr Ralf Martin, Imperial College Business School

Ralf will present evidence of a causal impact of research and development (R&D) tax incentives on innovation. The study exploits a change in the asset-based size thresholds for eligibility for R&D tax subsidies and implement a Regression Discontinuity Design using administrative tax data on the population of UK firms. There are statistically and economically significant effects of the tax change on both R&D and patenting (even when quality-adjusted). R&D tax price elasticities are large at about 2.6, probably because the treated group is from a sub-population of smaller firms and subject to financial constraints. There does not appear to be pre-policy manipulation of assets around the thresholds that could undermine our design. Over the 2006-2011 period aggregate business R&D would be around 10 per cent lower in the absence of the tax relief scheme. We also show that the R&D generated by the tax policy creates positive spillovers on the innovations of technologically related firms.

Speaker bio

Dr Ralf Martin joined Imperial College Business School in September 2011. In his research he examines how government policies affect business performance. He is particularly focusing on climate change policies, to understand which policies are most effective and efficient in reducing greenhouse gas emission and what effect these policies have on other aspects of business performance.