Examining the Impact of R&D Tax Credits on Employment Growth Across Economic Sectors

Abstract

The present study probes the impact of Research and Development (R&D) tax credits on employment growth in Portugal from 2014 to 2022, particularly on the total employees, R&D staff, and PhD (Doctor of Philosophy) holders across economic activity sectors. Objectives: We aim to assess whether R&D tax credits lead to employment growth, particularly in industries reliant on highly skilled R&D personnel. Methods/Analysis: Using firm-level data from Portugal’s R&D survey, we apply a difference-in-differences (DiD) approach with an event study and staggered design for temporal analysis. This methodology, enhanced by a staggered design, allows us to isolate the effects across periods, comparing treated firms with controls within sectors classified by the NACE Rev. 2 system. Findings: Results reveal that R&D tax credits significantly enhance employment for R&D staff, with the information and communication sector having an 18.4% increase and the manufacturing sector rising 12.3%. Novelty/Improvement: Using firm-level data and a staggered DiD design, this study offers granular insights into sectoral variations, underscoring the importance of sector-specific policies. Findings provide valuable guidance for policymakers optimizing and enhancing the R&D tax credits framework to support employment at different levels of expertise and across different economic activity spheres.