Tax Credits and Small Firm R&D Spending

45 Pages Posted: 27 Oct 2014 Last revised: 1 May 2022

See all articles by Ajay K. Agrawal

Ajay K. Agrawal

University of Toronto - Rotman School of Management; National Bureau of Economic Research (NBER)

Carlos Rosell

Department of Finance, Canada

Timothy Simcoe

Boston University - Questrom School of Business; NBER

Date Written: October 2014

Abstract

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.

Suggested Citation

Agrawal, Ajay K. and Rosell, Carlos and Simcoe, Timothy S., Tax Credits and Small Firm R&D Spending (October 2014). NBER Working Paper No. w20615, Available at SSRN: https://ssrn.com/abstract=2515193

Ajay K. Agrawal (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Carlos Rosell

Department of Finance, Canada ( email )

90 Elgin Street
Ottawa, Ontario K1P 0C6
Canada

Timothy S. Simcoe

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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