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

Lokshin, Boris and Mohnen, Pierre (2010). How effective are level-based R&D tax credits? Evidence from the Netherlands. UNU-MERIT.

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  • Author Lokshin, Boris
    Mohnen, Pierre
    Title How effective are level-based R&D tax credits? Evidence from the Netherlands
    Publication Date 2010
    Publisher UNU-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.
    Keyword R&D tax credits
    Panel data
    Crowding out
    User-cost elasticity
    JEL O32
    O38
    H25
    H50
    C23
    Copyright Holder UNU-MERIT
    Copyright Year 2010
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    Created: Wed, 11 Dec 2013, 16:48:20 JST