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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. Nous estimons l'efficacité des incitations fiscales à la R-D au Québec à partir des données des enquêtes annuelles de la R&D et de la manufacture et à partir des données administratives pour la période 1997 à 2003. L'élasticité-prix de court terme est estimée à -0.10 et celle de long terme à -0.14, avec une élasticité légèrement supérieure pour les petites entreprises. Nous trouvons une perte sèche assez nette pour les grandes firmes associée aux crédits d'impôt basés sur les niveaux de R-D. Pour les petites firmes cette perte sèche n'est pas suffisante pour détruire l'additionalité des crédits d'impôt. Les crédits d'impôt basés sur la recherche incrémentale n'accusent pas de perte sèche et sont de ce point de vue préférables aux crédits en proportion du niveau de R-D.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2009s-01.

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Length: 36 pages
Date of creation: 01 Jan 2009
Date of revision:
Handle: RePEc:cir:cirwor:2009s-01
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  1. Lokshin, Boris & Mohnen, Pierre, 2007. "Measuring the Effectiveness of R&D Tax Credits in the Netherlands," MERIT Working Papers 025, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  2. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
  3. 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.
  4. Klette, Tor Jakob & Griliches, Zvi, 1996. "The Inconsistency of Common Scale Estimators When Output Prices Are Unobserved and Endogenous," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(4), pages 343-61, July-Aug..
  5. 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.
  6. 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.
  7. Petr Hanel & Dirk Czarnitzki & Julio Miguel Rosa, 2005. "Evaluating the Impact of R&D Tax Credits on Innovation: A Microeconometric Study on Canadian Firms," Cahiers de recherche 05-01, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  8. 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.
  9. 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.
  10. 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.
  11. Nadiri, M Ishaq & Rosen, Sherwin, 1969. "Interrelated Factor Demand Functions," American Economic Review, American Economic Association, vol. 59(4), pages 457-71, Part I Se.
  12. Chirinko, Robert S. & Fazzari, Steven M. & Meyer, Andrew P., 1999. "How responsive is business capital formation to its user cost?: An exploration with micro data," Journal of Public Economics, Elsevier, vol. 74(1), pages 53-80, October.
  13. 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.
  14. 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.
  15. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
  16. Beatriz Corchuelo & Ester Martinez-Ros, 2009. "The Effects of Fiscal Incentives for R & D in Spain," Business Economics Working Papers wb092302, Universidad Carlos III, Departamento de Economía de la Empresa.
  17. 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.
  18. Pierre Mohnen, 1999. "Tax Incentives: Issue and Evidence," CIRANO Working Papers 99s-32, 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.
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