We exploit a 2008 UK policy reform that increased the tax incentives for R&D in medium-sized enterprises relative to large ones, to overcome the endogeneity of exposure to such tax credits. We estimate a difference-in-difference design on the universe of corporation tax filings in the United Kingdom, combined with other datasets. We find a positive and significant impact of tax credits for R&D, implying a user-cost elasticity estimate of around −1.6. This magnitude implies around $1 in additional private R&D spending per dollar foregone in tax revenue.
"Effectiveness of Fiscal Incentives for R&D: Quasi-experimental Evidence."
American Economic Journal: Economic Policy,
Business Taxes and Subsidies including sales and value-added (VAT)
Fiscal Policies and Behavior of Economic Agents: Firm
Firm Performance: Size, Diversification, and Scope
Management of Technological Innovation and R&D