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Effectiveness of R&D Tax Incentives in Small and Large Enterprises in Quebec

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  • Baghana, Rufin

    ()
    (Ministere des Finances, Quebec)

  • Mohnen, Pierre

    ()
    (UNU-MERIT, Maastricht University, and CIRANO)

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

Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 001.

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Date of creation: 2009
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Handle: RePEc:unm:unumer:2009001

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Keywords: R&D; tax credits; tax incentives; price elasticity; research and development; manufacturing industry; Quebec; Canada;

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