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Effect of R&D Tax Credits for Small and Medium-sized Enterprises in Japan: Evidence from firm-level data

By KOBAYASHI Yohei

Abstract

Although numerous studies have evaluated the effect of tax credits on R&D, many have neglected the problem of selection bias. Furthermore, empirical studies have found that Japan's total factor productivity (TFP) growth has slowed since the 1990s, and Kim et al. (2010) have attributed this slowdown partly to low R&D expenditures among small and medium-sized enterprises (SME). Evidence suggests that enhancing R&D among small firms is essential for Japan's economic growth. This paper estimates the effect of R&D tax credits for SMEs using firm-level micro data from "The 2009 Basic Survey of Small and Medium Enterprises." We use the propensity score method introduced by Rubin (1974), in which recipients of tax credits are matched with the most similar non-recipients. Empirical results show that R&D tax credits induce an increase in SMEs' R&D expenditures. Moreover, we find that the effect of R&D tax credits on liquidity-constrained firms is much greater than on firms without liquidity constraints.

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Citations

  1. (2008). Are R&D subsidies a substitute or a complement to privately funded
  2. Development Notes: those employing 300 or more are considered large enterprises. R&D expenditures include both internal and external expenditures. Data are for enterprises
  3. Treated Control t‐value p‐value Treated Control t‐value p‐value Treated Control t‐value p‐value ln(total

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