Micro-Level Insights into the Impact of R&D Tax Credits on Firm Behavior in the Portuguese Services Industry

Abstract

This research explores the impact of R&D tax credits on the distribu­tion of full-time equivalent staff in 2838 firms in the services industry that en­gaged in R&D activities in Portugal between 1995 and 2017. In contrast to ag­gregate or sectoral approaches, the analysis relies on comprehensive firm-lev­el data. Utilizing the official business R&D survey database, variables such as the full-time equivalent staff, PhD holders, and R&D expenditure are exam­ined. Employing a Difference-in-Differences with an event study and a stag­gered design for temporal analysis, the impact of introducing a tax incentive scheme for corporate R&D in the services industry is evaluated. Results reveal a positive effect of the tax credit, with varying average impacts based on the duration of exposure per firm. These findings mirror similar positive outcomes observed in France in 2004 and 2005, where firms benefiting from the Jeune Entreprise Innovante scheme exhibited higher annual employment growth. The study contributes to understanding the effectiveness of R&D tax credits in shaping the distribution of the full-time equivalent staff in services firms and provides insights into potential policy implications.