This paper uses a new empirical design to explore how labor market polarization affects individuals’ incentive to pursue education funded on the margin by student debt. We argue that the labor market polarization–where automation replaces mid-skill and mid-education-level job–changes the marginal benefits of education and training and sharpens incentives to incur student debt. We advance a new measure of labor market polarizations that allows to capture the heterogeneity of this phenomena across geographies and time. Using this measure, we find that U.S. CBSAs that experience deeper labor market polarization see an increase in student debt balances and in the number of people pursuing student debt. On average, the decline in middle-skill jobs and wages has little effect on individuals’ ability to pay down existing student debt. The effects are most pronounced in ZIP codes with lower average credit scores, lower incomes, and higher share of the minority population.

We propose a novel mechanism through which established firms contribute to the startup ecosystem: the allocation of R&D tax credits to startups via the M&A channel. We show that when established firms become eligible for R&D tax credits, they increase their R&D and M&A activity. In particular, they acquire more venture capital (VC)-backed startups, but not non-VC-backed firms. Moreover, the impact of R&D tax credits on firms’ R&D is increasing with their acquisition of VC-backed startups. The results suggest that established firms respond to R&D tax credits by acquiring startups rather than solely focusing on increasing their R&D intensity in-house. We also highlight evidence that startups do not appear to benefit from R&D tax credits directly, perhaps because they typically lack the taxable income necessary to directly benefit from the tax credits. In this context, established firms can play an intermediary role by acquiring startups and reallocating R&D tax credits, effectively relaxing the financial constraints faced by startups.