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

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  • 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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  • KOBAYASHI Yohei, 2011. "Effect of R&D Tax Credits for Small and Medium-sized Enterprises in Japan: Evidence from firm-level data," Discussion papers 11066, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:11066
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    1. Chia-Hui Huang & Chih-Hai Yang, 2009. "Tax Incentives and R&D Activity: Firm-Level Evidence from Taiwan," Global COE Hi-Stat Discussion Paper Series gd09-102, Institute of Economic Research, Hitotsubashi University.
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    Cited by:

    1. Hiroyuki Kasahara, & Katsumi Shimotsu & Michio Suzuki, 2012. "Does an R&D Tax Credit Affect R&D Expenditure? The Japanese Tax Credit Reform in 2003," CARF F-Series CARF-F-275, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Oct 2013.
    2. Kui-Wai Li, 2018. "Analyzing The Tfp Performance Of Chinese Industrial Enterprises," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(05), pages 1263-1284, December.
    3. Kasahara, Hiroyuki & Shimotsu, Katsumi & Suzuki, Michio, 2014. "Does an R&D tax credit affect R&D expenditure? The Japanese R&D tax credit reform in 2003," Journal of the Japanese and International Economies, Elsevier, vol. 31(C), pages 72-97.

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