Will the real R&D employees please stand up? Effects of tax breaks on firm level outcomes


This  paper  evaluates  the  effect  of  R&D  tax  incentives  in  a  quasi-experimental  setting.   I  identify  the  impact  by  exploiting  a  reform  in UK policy which increased the SME threshold from 250 to 500 employees.  First, I provide evidence that tax incentives help to increase R&D spending at the company level, and the effect translates to a user cost elasticity of -1.18.  Second, R&D generated through the reform may be attributable  to  an  increase  in  the  number  of  R&D  employees.   I  use R&D survey data for which the companies do not have an incentive to relabel their ordinary spending as R&D.