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How Effective Are Level-Based R&D Tax Credits? Evidence From The Netherlands

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Executive Summary

This paper examines the impact of the R&D fiscal incentive program on R&D by Dutch firms. Taking a factor-demand approach the authors 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, they perform a cost-benefit analysis of the R&D incentive program. They find some evidence of additionally suggesting that the level-based program of R&D incentives in the Netherlands is effective in stimulating firms' investment in R&D.

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