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

Boris Lokshin (1) , Pierre Mohnen (2)

1 Organization and Strategy
2 Maastricht University [Maastricht]

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.

Mots clés: Social Sciences & Humanities

Domaines: Économie et finance quantitative [q-fin]

Boris Lokshin, Pierre Mohnen. How effective are level-based R&D tax credits? Evidence from the Netherlands. Applied Economics, 2011, pp.1. ⟨10.1080/00036846.2010.543083⟩. ⟨hal-00677632⟩