Evaluation of the R&D Tax Incentives in Sweden

In 2014, the Swedish government introduced a specific kind of R&D tax relief, reducing firms’ payroll tax liability for R&D staff. In comparison to traditional tax incentives where all qualified R&D expenditures can be deducted from taxable income or income taxes, the Swedish subsidy specifically benefits firms with labor-intensive R&D and loss-making firms. In addition, there is a monthly subsidy cap per firm, which benefits small firms. Exploiting the policy design, we perform a difference-in-difference analysis with firm[1]level panel data on R&D subsidies combined with data on employed scientists over the time period 2011–19. We find that the subsidy has positive effects on the number and share of scientists, with magnitudes of between 32 and 107 and 30 and 43 percent, respectively. Moreover, the treatment effect of the subsidy does not differ across firms by size or debt ratio but is somewhat higher for labor-intensive firms, although the last result is ambiguous.