Does persistence in using R&D tax credits help to achieve product innovations? Articles uri icon

publication date

  • December 2021

start page

  • 121065

end page

  • 121082

volume

  • 173

International Standard Serial Number (ISSN)

  • 0040-1625

Electronic International Standard Serial Number (EISSN)

  • 1873-5509

abstract

  • Despite the generosity of its tax system, Spain is far from EU countries in terms of R&D spending and innovation
    outcomes. A policy instrument commonly used to foster firms&;34; R&D investment are tax incentives. The use of this
    instrument is not generalized in firms spending on R&D, and only a fraction of firms are regular claimants. This
    paper investigates whether persistence in using tax credits is positively related to product innovations, beyond
    R&D investments. We consider that firms investing in qualified R&D and using tax credits regularly are likely to
    be firms aiming at innovating. By contrast, occasional tax credit users may be firms investing in R&D for different
    reasons, such as exploiting a business opportunity, or reducing their corporate tax burden, so that they may not
    prioritize innovating. Using a sample of Spanish manufacturing firms spanning 2001&#8211#2014, we first estimate
    persistence using a duration model accounting for firm observed and unobserved heterogeneity. Our results are
    consistent with negative duration dependence, indicating that the probability of ceasing in claiming tax credits
    decreases with the passage of time. Second, we estimate a count-data model and find that the number of product
    innovations positively depends on tax credit persistence only for SMEs.

keywords

  • count-data; duration dependence; persistence; tax credits