Tax Credits and Small Firm R&D Spending

NBER Working Paper No. 20615

Issued in October 2014, Revised in May 2019

NBER Program(s):Public Economics, Productivity, Innovation, and Entrepreneurship



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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Document Object Identifier (DOI): 10.3386/w20615

Published: Ajay Agrawal & Carlos Rosell & Timothy Simcoe, 2020. "Tax Credits and Small Firm R&D Spending," American Economic Journal: Economic Policy, vol 12(2), pages 1-21.

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