Effectiveness of Fiscal Incentives for R&D: Quasi-experimental Evidence

We exploit a 2008 UK policy reform that increased the tax incentives for R&D in medium-sized enterprises relative to large ones, to over-come 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.