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Effectiveness of R&D tax incentives in small and large enterprises in Québec

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  • Rufin Baghana
  • Pierre Mohnen

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Abstract

In this paper we evaluate the effectiveness of R&D tax incentives in Quebec, using manufacturing firm data from 1997 to 2003 originating from R&D surveys, annual surveys of manufactures and administrative data. The estimated price elasticity of R&D is -0.10 in the short run and -0.14 in the long run, with a slightly higher elasticities for small firms than for large firms. We show that there is a deadweight loss associated with level-based R&D tax incentives that is particularly acute for large firms. For small firms it is not sizeable enough to suppress the R&D additionality, at least not during quite a number of years after the initial tax change. Incremental R&D tax credits do not suffer from this deadweight loss and are from that perspective preferable to level-based tax incentives.

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Bibliographic Info

Article provided by Springer in its journal Small Business Economics.

Volume (Year): 33 (2009)
Issue (Month): 1 (June)
Pages: 91-107

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Handle: RePEc:kap:sbusec:v:33:y:2009:i:1:p:91-107

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Web page: http://www.springerlink.com/link.asp?id=100338

Related research

Keywords: Price elasticity of R&D; Quebec; R&D tax credits; O32; O38; H25; H50; C23; L26;

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