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How effective are level-based R&D tax credits? Evidence from the Netherlands

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  • Boris Lokshin

    () (Organization and Strategy - University of Maastricht)

  • Pierre Mohnen

    () (Maastricht University - Maastricht University)

Abstract

This paper examines the impact of the R&D fiscal incentive program on R&D by Dutch firms. Taking a factor-demand approach we measure the elasticity of firm R&D capital accumulation to its user cost. Econometric models are estimated using a rich unbalanced panel of firm data covering the period 1996-2004 with firm-specific R&D user costs varying with tax incentives. Using the estimated user cost elasticity, we perform a cost-benefit analysis of the R&D incentive program. We find some evidence of additionality suggesting that the level-based program of R&D incentives in the Netherlands is effective in stimulating firms' investment in R&D. However, the hypothesis of crowding out can be rejected only for small firms. The analysis also indicates that the level-based nature of the fiscal incentive scheme leads to a substantial social dead-weight loss.

Suggested Citation

  • Boris Lokshin & Pierre Mohnen, 2011. "How effective are level-based R&D tax credits? Evidence from the Netherlands," Post-Print hal-00677632, HAL.
  • Handle: RePEc:hal:journl:hal-00677632
    DOI: 10.1080/00036846.2010.543083
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00677632
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    References listed on IDEAS

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    Keywords

    Social Sciences & Humanities;

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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