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

Research output: Contribution to journalArticleAcademicpeer-review

15 Citations (Scopus)

Abstract

This article examines the impact of the R&D fiscal incentive programme 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 to 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 programme. We find some evidence of additionality suggesting that the level based programme 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 deadweight loss.

Original languageEnglish
Pages (from-to)1527-1538
Number of pages12
JournalApplied Economics
Volume44
Issue number12
Early online date9 Mar 2011
DOIs
Publication statusPublished - 2012

Keywords

  • INCENTIVES
  • COUNTRIES
  • PANEL
  • COST

Cite this

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title = "How effective are level-based R&D tax credits? Evidence from the Netherlands",
abstract = "This article examines the impact of the R&D fiscal incentive programme 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 to 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 programme. We find some evidence of additionality suggesting that the level based programme 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 deadweight loss.",
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How effective are level-based R&D tax credits? Evidence from the Netherlands. / Lokshin, B.; Mohnen, P.

In: Applied Economics, Vol. 44, No. 12, 2012, p. 1527-1538.

Research output: Contribution to journalArticleAcademicpeer-review

TY - JOUR

T1 - How effective are level-based R&D tax credits? Evidence from the Netherlands

AU - Lokshin, B.

AU - Mohnen, P.

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AB - This article examines the impact of the R&D fiscal incentive programme 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 to 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 programme. We find some evidence of additionality suggesting that the level based programme 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 deadweight loss.

KW - INCENTIVES

KW - COUNTRIES

KW - PANEL

KW - COST

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