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What Does it Take for an R&D Tax Incentive Policy to Be Effective?

  • Pierre Mohnen
  • Boris Lokshin

While in 1996, 12 OECD countries offered R&D tax incentives, in 2008 this number increased to 21. Most countries have opted for level-based instead of incremental R&D tax incentives. This paper takes a critical look at how the effectiveness of R&D tax incentives has been assessed in recent evaluations. Whether based on structural models estimating a price elasticity of R&D or on treatment evaluation methods, most studies estimate the cost effectiveness ratio or additionality. If the cost effectiveness ratio is greater than 1, or firms do more R&D than before, the policy is considered to be effective. A more proper net welfare evaluation of this policy should also include administration, compliance and transfer costs, the marginal burden of taxation, as well R&D externalities and the indirect effects on innovation and productivity. The net welfare gain is shown to be sensitive to a certain number of parameters that are not always estimated with great precision. In particular, the transfer cost or deadweight loss associated with level-based tax incentives is shown to depend on the size of the firm, or more precisely its ex-ante R&D level. We report on the success of a past policy changes in the Netherlands and simulate the effect of various parameter changes in the existing Dutch R&D tax incentive scheme. We show that introducing marginal changes in the schemes's parameters has little impact of increased R&D spending. The policy is more effective for small firms than for large firms. We end with a discussion of the pros and cons of level-based versus incremental R&D tax incentives. Alors qu'en 1996, 12 pays de l'OECD offraient des crédits d'impôt recherche, en 2008 ils furent au nombre de 21. La plupart des pays optent pour des crédits d'impôt en volume et non en accroissement. Nous jetons un regard critique sur la façon dont l'efficacité des incitations à la R-D a été évaluée jusqu'ici. Que ce soit sur la base de modèles structurels qui estiment une élasticité-prix à la recherche ou à partir de méthodes d'évaluation de traitement, la plupart des études testent l'existence d'un effet d'additionalité. Si les entreprises font plus qu'un dollar de recherche par dollar de crédit d'impôt, la politique est considérée comme efficace. Une analyse coût-bénéfice plus globale qui inclurait également les coûts de gestion publique et privée des crédits d'impôt, les coûts additionnels dus à la taxation, les externalités de la recherche et les effets de celle-ci sur l'innovation et la productivité, serait plus appropriée. Le bénéfice social net qui ressort d'une telle analyse est sensible à des estimations par ailleurs assez imprécises de certains de ces effets. Nous montrons que la perte sèche liée aux crédits d'impôt recherche en volume dépend du niveau de R-D exécutée avant l'entrée en vigueur des crédits d'impôt. Nous examinons l'efficacité de la politique des crédits d'impôt recherche aux Pays-Bas. Nous montrons notamment que des changements marginaux dans certains paramètres de cette politique n'ont qu'un impact limité sur les dépenses privées de recherche des entreprises. Cette politique est plus efficace pour les petites entreprises que pour les grandes. Nous terminons en pesant le pour et le contre d'une politique de crédits d'impôt en volume comparée à une politique en accroissement.

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Paper provided by CIRANO in its series CIRANO Working Papers with number 2009s-11.

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Length: 32 pages
Date of creation: 01 Apr 2009
Date of revision:
Handle: RePEc:cir:cirwor:2009s-11
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  3. Rufin Baghana & Pierre Mohnen, 2009. "Effectiveness of R&D Tax Incentives in Small and Large Enterprises in Québec," CIRANO Working Papers 2009s-01, CIRANO.
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  5. 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).
  6. Bruno Crepon & Emmanuel Duguet & Jacques Mairesse, 1998. "Research, Innovation And Productivity: An Econometric Analysis At The Firm Level," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 7(2), pages 115-158.
  7. 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.
  8. 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.
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  10. Mörk, Eva & Sjögren, Anna & Svalelryd, Helena, 2008. "Cheaper child care, more children," Working Paper Series 2008:29, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  11. 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.
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  22. 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.
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