Tax Credits and Small Firm R&D Spending

42 Pages Posted: 11 Apr 2017

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: April 10, 2017

Abstract

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

Agrawal, Ajay K. and Rosell, Carlos and Simcoe, Timothy S., Tax Credits and Small Firm R&D Spending (April 10, 2017). Boston University Questrom School of Business Research Paper, Available at SSRN: https://ssrn.com/abstract=2951105 or http://dx.doi.org/10.2139/ssrn.2951105

Ajay K. Agrawal

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
United States

Carlos Rosell

Department of Finance, Canada ( email )

90 Elgin Street
Ottawa, Ontario K1P 0C6
Canada

Timothy S. Simcoe (Contact Author)

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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