Wage effects of R&D tax incentives: Evidence from the Netherlands

Boris Lokshin & Pierre Mohnen


This paper examines the impact of the Dutch R&D tax incentives program, known as WBSO, on the wages of R&D workers. In our model these wages are partly determined by the government’s WBSO tax disbursements. We construct detailed firm- and time specific R&D tax credit rates as a function of the R&D tax incentives scheme to capture the wage effects of the government R&D support. An instrumentalvariables econometric model is estimated using an unbalanced firm-level panel data covering the period 1996-2004. After controlling for firm and industry effects and business cycle fluctuations, R&D tax incentives are found to increase R&D wages. The R&D wage effect of these incentives is smaller than their effect on real R&D investment, but it is still sizeable. The elasticity of the R&D wage with respect to the fraction of the wage supported by the WBSO scheme is estimated at 0.1.

Key words: price effect of tax incentives; tax credits; panel data model; R&D wages

JEL Codes: O32, O38, H25, J30, C23

UNU-MERIT Working Papers ISSN 1871-9872