Measuring The Effectiveness Of R&D Tax Credits In The Netherlands

This paper examines the impact of the Dutch R&D fiscal incentive program, known as WBSO, on R&D capital formation. Taking a factor-demand approach the authors measure the elasticity of firm R&D capital accumulation to its user cost. An econometric model is estimated using a rich unbalanced panel covering the period 1996-2004 with firm-specific R&D user costs varying with tax incentives. Using the estimated user cost elasticity, they examine the impact of the R&D incentive program. They find evidence that the program of R&D incentives in the Netherlands has been effective in reducing the user cost of R&D and in stimulating firms' investment in R&D.