An exploration of the feasibility of an econometric analysis of the impact of R&D tax credits on R&D expenditure. The objectives of Oxera’s research were to:
provide HMRC with a clearer understanding of the data currently available for empirical or econometric analysis;
construct a matched dataset of identified R&D tax credit data sources, to ascertain if it could be used for an econometric study;
undertake a feasibility assessment of whether the dataset is of sufficient quality to support robust empirical analysis.
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The first stage of the analysis, the academic literature review, focused on the approaches adopted by previous researchers, the limitations of their methods, and their results. This review provided valuable insights into the feasibility of undertaking an econometric analysis of R&D tax incentives in the UK. Subsequently, Oxera assessed whether the data currently available would enable a robust econometric analysis of the impact of R&D tax credits. A dataset was created, containing information on whether firms have an R&D tax credit, the amount of R&D expenditure in that firm, and other explanatory factors that may influence levels of R&D expenditure (such as turnover). After analysing the dataset, Oxera was able to advise the client on approaches that it could take in facilitating a robust econometric evaluation of R&D tax credits.