How effective are level-based R&D tax credits? Evidence from the Netherlands

Boris Lokshin and Pierre Mohnen

No 2010-040, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: This paper examines the impact of the R&D fiscal incentive program on R&D by Dutch firms. Taking a factor-demand approach we measure the elasticity of firm R&D capital accumulation to its user cost. Econometric models are estimated using a rich unbalanced panel of firm data covering the period 1996-2004 with firm-specific R&D user costs varying with tax incentives. Using the estimated user cost elasticity, we perform a cost-benefit analysis of the R&D incentive program. We find some evidence of additionality suggesting that the level-based program of R&D incentives in the Netherlands is effective in stimulating firms' investment in R&D. However, the hypothesis of crowding out can be rejected only for small firms. The analysis also indicates that the level-based nature of the fiscal incentive scheme leads to a substantial social dead-weight loss.

Keywords: R&D tax credits; panel data; crowding out; user-cost elasticity (search for similar items in EconPapers)
JEL-codes: C23 H25 H50 O32 O38 (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: How effective are level-based R&D tax credits? Evidence from the Netherlands (2012)
Working Paper: How effective are level-based R&D tax credits? Evidence from the Netherlands (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:unm:unumer:2010040

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