Incentivizing Innovation:The Effects of Research and DevelopmentTax Credits on Corporate Behavior

With corporate income tax breaks and excise taxation consistently being used asmethods of influencing company behavior, there has always been a desire to measure the sizeof the effect taxation has on corporate behavior. In this paper, I examine the effects of a changein research and development (R&D) tax policy on firm innovation, as measured by the quantityof US patent applications filed annually. Using a combination of panel data and linearregressions with year and company fixed effects, I look at the major differences in US patentapplication filings before and after the addition of the Alternative Simplified Credit (ASC) in2009. The findings suggest that there is a positive effect of the ASC on patent applications,though it is quite negligible. Additionally, it appears that the effects of the ASC are negativelycorrelated with the size of the firm, but at an insignificant level