Will the real R&D employees please stand up? Effects of tax breaks on firm-level outcomes

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Abstract

This paper evaluates the effect of tax incentives for research and development (R&D) on R&D spending and employment of R&D staff in a quasi-experimental setting. To do this, I exploit an exogenous reform in UK R&D tax policy, which changed the definition of an SME from firms with fewer than 250 employees to those with fewer than 500 employees. I use the UK Business Enterprise Research and Development Survey (BERD), for which companies do not have an incentive to relabel their ordinary employees or spending as R&D. I find that R&D tax incentives help to increase R&D spending at the company level; this translates to a user cost elasticity between −0.88 and −1.18. Further, the additional R&D generated through the tax relief can be attributed entirely to an increase in the number of R&D employees in the companies’ workforce. Together, these results challenge a common narrative on the role of R&D tax incentives.

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APA

Guceri, I. (2018). Will the real R&D employees please stand up? Effects of tax breaks on firm-level outcomes. International Tax and Public Finance, 25(1), 1–63. https://doi.org/10.1007/s10797-017-9438-3

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