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

  • Rufin Baghana
  • Pierre Mohnen

    ()

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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File URL: http://hdl.handle.net/10.1007/s11187-009-9180-z
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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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