Tax Credits and Small Firm R&D Spending
- American Economic Journal: Economic Policy (Forthcoming)
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 seventeen 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.
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