Do tax Incentives for Research Increase Firm Innovation? An RD Design for R&D

Dr. Ralf Martin, Imperial College London

We present evidence of a causal impact of research and development (R&D) tax incentives on innovation. We exploit 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 2006-11 period aggregate business R&D would be around 10% 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 techno-logically related firms.

About the speaker

Ralf Martin is an Associate Professor of Economics at Imperial College Business School and the programme director of the Growth Programme at LSE’s Centre for Economic Performance. In his research he has been pioneering the use of confidential government business data to study productivity and evaluate government policies. More recently, he has been studying issues related to climate change including the linkages between innovation and climate mitigation. In ongoing research - joint with major energy companies and ICT firms - he is looking at how new IoT technologies, improved customer feedback and customer incentives can change energy customer behaviour to both reduce consumption and improve energy system efficiency. Ralf’s research has been published in leading academic journals such as the American Economic Review and the Journal Political Economy. He is often advising government bodies such as the UK Department for Business Energy & Industrial Strategy (BEIS), the UK Climate Change Committee (CCC) or the OECD on issues related to his research. He holds a PhD in Economics from the London School of Economics.

Venue: Conference room (0.16 & 0.17)

Date: 07 December 2017

Time: 12:00 - 13:00  CET