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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Paper provided by United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology in its series UNU-MERIT Working Paper Series with number
001.
Find related papers by JEL classification: O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D O38 - Economic Development, Technological Change, and Growth - - Technological Change - - - Government Policy H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies H50 - Public Economics - - National Government Expenditures and Related Policies - - - General C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
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