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What does it take for and R&D tax incentive policy to be effective?

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  • Pierre Mohnen

    ()
    (University of Maastrich, UNU-MERIT and CIRANO)

  • Boris Lokshin

    ()
    (University of Maastricht and UNU-MERIT)

Abstract

We take a critical look at how to assess the effectiveness of R&D tax incentives. The net welfare gain is shown to be sensitive to a certain number of parameters. In particular, the deadweight loss associated with level-based tax incentives depends on the ex-ante R&D level. We report on the success of a past policy changes and simulate the effect of various parameter changes in the existing Dutch R&D tax incentive scheme. We show that this policy is more effective for small firms than for large firms. We end with a discussion of the pros and cons of volume-based versus incremental R&D tax incentives.

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Bibliographic Info

Paper provided by Institut d'Economia de Barcelona (IEB) in its series Working Papers with number 2009/9.

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Length: 34 pages
Date of creation: 2009
Date of revision:
Handle: RePEc:ieb:wpaper:2009/10/doc2009-9

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Keywords: R&D tax credits; policy evaluation; cost-benefit analysis.;

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References

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  1. Bloom, Nicholas & Griffith, Rachel & Van Reenen, John, 2000. "Do R&D Credits Work? Evidence From A Panel Of Countries 1979-97," CEPR Discussion Papers 2415, C.E.P.R. Discussion Papers.
  2. Dagenais, Marcel & Mohnen, Pierre & Therrien, Pierre, 2004. "Les firmes canadiennes répondent-elles aux incitations fiscales à la recherche-développement?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 80(2), pages 175-205, Juin-Sept.
  3. Jacques Mairesse & Benoît Mulkay, 2004. "Une evaluation du credit d’impot recherche en France, 1980-1997," Working Papers 2004-43, Centre de Recherche en Economie et Statistique.
  4. Benjamin Russo, 2004. "A cost-benefit analysis of R&D tax incentives," Canadian Journal of Economics, Canadian Economics Association, vol. 37(2), pages 313-335, May.
  5. Charles I. Jones & John C. Williams, . "Too Much of a Good Thing? The Economics of Investment in R&D," Working Papers 95006, Stanford University, Department of Economics.
  6. Nicholas Bloom & Rachel Griffith & John Van Reenen, 2007. "Do R&D Tax Credits Work? Evidence from a Panel of Countries 1979-1997," Discussion Papers 07-020, Stanford Institute for Economic Policy Research.
  7. Jeffrey I. Bernstein, 1986. "The Effect of Direct and Indirect Tax Incentives on Canadian Industrial R&D Expenditures," Canadian Public Policy, University of Toronto Press, vol. 12(3), pages 438-448, September.
  8. Czarnitzki, Dirk & Hanel, Petr & Rosa, Julio Miguel, 2004. "Evaluating the Impact of R&D Tax Credits on Innovation: A Microeconometric Study on Canadian Firms," ZEW Discussion Papers 04-77, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  9. Cappelen, Ådne & Raknerud, Arvid & Rybalka, Marina, 2012. "The effects of R&D tax credits on patenting and innovations," Research Policy, Elsevier, vol. 41(2), pages 334-345.
  10. Daniel J. Wilson, 2005. "Beggar thy neighbor? the in-state vs. out-of-state impact of state R&D tax credits," Working Paper Series 2005-08, Federal Reserve Bank of San Francisco.
  11. Rufin Baghana & Pierre Mohnen, 2009. "Effectiveness of R&D Tax Incentives in Small and Large Enterprises in Québec," CIRANO Working Papers 2009s-01, CIRANO.
  12. Emmanuel Duguet, 2008. "L’effet du credit d’impôt recherche sur le financement privé de la recherche : une évaluation économétrique," Documents de recherche 08-08, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  13. Crepon, B. & Duguet, E. & Mairesse, J., 1998. "Research Investment, Innovation and Productivity: An Econometric Analysis at the Firm Level," Papiers d'Economie Mathématique et Applications 98.15, Université Panthéon-Sorbonne (Paris 1).
  14. Eva Mörk & Anna Sjögren & Helena Svaleryd, 2009. "Cheaper Child Care, More Children," Working Papers 2009/2, Institut d'Economia de Barcelona (IEB).
  15. Bruno Crepon & Emmanuel Duguet & Jacques Mairessec, 1998. "Research, Innovation And Productivi[Ty: An Econometric Analysis At The Firm Level," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 7(2), pages 115-158.
  16. Boris Lokshin & Pierre Mohnen, 2007. "Measuring the Effectiveness of R&D tax credits in the Netherlands," CIRANO Working Papers 2007s-29, CIRANO.
  17. Bronwyn H. Hall & John van Reenen, 1999. "How Effective are Fiscal Incentives for R&D? A New Review of the Evidence," NBER Working Papers 7098, National Bureau of Economic Research, Inc.
  18. Marcel Dagenais & Pierre Mohnen & Pierre Therrien, 1996. "Les firmes canadiennes répondent-elles aux incitations fiscales à la recherche-développement? (rapport final)," CIRANO Project Reports 1996rp-03, CIRANO.
  19. Hall, Bronwyn & Van Reenen, John, 2000. "How effective are fiscal incentives for R&D? A review of the evidence," Research Policy, Elsevier, vol. 29(4-5), pages 449-469, April.
  20. Hollander, Abraham & Haurie, Alain & L'Ecuyer, Pierre, 1987. "Ratchet effects and the cost of incremental incentive schemes," Journal of Economic Dynamics and Control, Elsevier, vol. 11(3), pages 373-389, September.
  21. repec:fth:inseep:9833 is not listed on IDEAS
  22. repec:fth:inseep:9657 is not listed on IDEAS
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Citations

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Cited by:
  1. Luiz Ricardo Cavalcante & Bruno César Araújo & Donald Pianto & Fernanda De Negri & Patrick Alves, 2011. "Impactos Dos Fundos Setoriais Nasempresas," Anais do XXXVIII Encontro Nacional de Economia [Proceedings of the 38th Brazilian Economics Meeting] 124, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  2. A. Minniti & F. Venturini, 2014. "R&D Policy and Schumpeterian Growth: Theory and Evidence," Working Papers wp945, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Julien Pénin, 2013. "Devrait-on obliger les entreprises à investir en R&D ? Vers une approche des politiques d’innovation par la responsabilité des entreprises," Working Papers of BETA 2013-11, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  4. Wojciech Grabowski & Krzysztof Szczygielski & M. Teoman Pamukçu & Sinan Tandogan, 2013. "Does Government Support for Private Innovation Matter? Firm Level Evidence from Turkey and Poland," CASE Network E-briefs 3, CASE-Center for Social and Economic Research.

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