Working Paper #2010-040
How effective are level-based R&D tax credits? Evidence from the Netherlands
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
- JEL codes
-
- O32
- O38
- H25
- H50
- C23
Cite this as
APA 7th ed.Lokshin, B., & Mohnen, P. (2010). How effective are level-based R&D tax credits? Evidence from the Netherlands (UNU-MERIT Working Paper No. 2010-040). UNU-MERIT. https://unu-merit.nl/publications/working-papers/abstract/?id=3985