Measuring the Effectiveness of R&D tax credits in the Netherlands

Boris Lokshin & Pierre Mohnen


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 we 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, we examine the impact of the R&D incentive program. We 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.

Keywords: R&D tax credits; panel data; crowding out; user-cost elasticity JEL Classification: O32, O38, H25, H50, C23

UNU-MERIT Working Papers ISSN 1871-9872

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