Tax Credits and Small Firm R&D Spending
42 Pages Posted: 11 Apr 2017
Date Written: April 10, 2017
We use a change in Canadian tax law to examine how small private firms respond to the R&D tax credit. Our estimates imply an R&D user-cost elasticity above unity. Contract R&D expenditures are more elastic than the R&D wage bill. Firms that perform contract research or recently invested in R&D capital are more responsive to a change in the after-tax cost of R&D. We interpret the latter findings as evidence of adjustment costs.
Keywords: Research, Development, Tax Credit, Adjustment Costs
JEL Classification: O38, H25, D83
Suggested Citation: Suggested Citation