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