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 17 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.
Agrawal, Ajay, Carlos Rosell, and Timothy Simcoe.
"Tax Credits and Small Firm R&D Spending."
American Economic Journal: Economic Policy,
Firm Behavior: Empirical Analysis
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Business Taxes and Subsidies including sales and value-added (VAT)
Firm Performance: Size, Diversification, and Scope
Management of Technological Innovation and R&D
Technological Change: Government Policy