Extra tax credit, extra R&D? Vienna 2006-04-24 Extra tax credit, extra R&D? Maarten Cornet ([email protected]) & Björn Vroomen ([email protected]) CPB Netherlands Bureau of Economic Policy Analysis New Frontiers in Evaluation Vienna, 24 April 2006 (Work in Progress)
Extra tax credit, extra R&D?. Maarten Cornet ([email protected]) & Björn Vroomen ([email protected]) CPB Netherlands Bureau of Economic Policy Analysis New Frontiers in Evaluation Vienna, 24 April 2006 (Work in Progress). Outline. Introduction Methodology Cases starter programme - PowerPoint PPT Presentation
Welcome message from author
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
CPB Netherlands Bureau of Economic Policy Analysis
New Frontiers in EvaluationVienna, 24 April 2006
(Work in Progress)
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Outline
Introduction
Methodology
Cases► starter programme► extension first tax-credit bracket
Added value
Discussion
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Introduction
R&D tax-credit programme► ‘simple’ tool► reference point for more complex programmes
Are R&D-support programmes effective?► identification causal relation► literature not convincing
Analysis of (changes in) policy with social experiment framework► We present two examples
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
The ‘WBSO’
WBSO: Dutch R&D tax credit programme► ‘Simple’ tool► Reduction of total wage costs (including R&D)► Credit is only based on R&D-employment (total
R&D-wage costs)► 40% tax credit for the first € 68k, 13% for the
remaining
R&D-wage costs€ 68K€ 0
40 % 13 %
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Effective?
Effectiveness of innovation support programmes in general unclear
Causality or correlation?► WBSO↑ → S&O↑ or S&O↑ → WBSO↑?
Identifying a causal relation between instrument and outcome is far from trivial
We use social experiment
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Social experiment
Identify two groups; experimental & control► similar participants in that manner that the difference
in outcome can only be explained by the treatment
Participants are not randomly assigned and aware of being treated!
Use characteristics of ‘experiment’ (policy) to identify both groups
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Data
Data provided by► Dutch Tax and Customs Administration► SenterNovem (Ministry of Economic Affairs,
programme administrator)
Data provided on participants in the WBSO-programme► total yearly R&D wages► firm characteristics (branch, turnover, total wages)► period 1994-2003 (focus on 2000-2001)► 28000+ records
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Estimators
Difference-in-Difference estimator (DD): compare group averages over time► corrects time specific effects► corrects group specific effects
First-Difference estimator (FD): compare growth/change of individual participants over time► corrects time specific effects► corrects firm specific effects
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Changes WBSO 2001
Starter programme► additional support for new R&D-firms (starters) ► ‘goal directed’ programme
Extension of the first tax-credit bracket ► €68K -> €90K► ‘general’ programme
Starters benefit from both programs
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Starter programme
R&D-wage costs
13 %
60 %
90.756
40 %
-
Credit
-
starter
no starter
-
-
Extra 20% credit for R&D-wage costs till 90K
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Identification starters
‘younger’ than 5 years max three years of starter funding
‘Age’
WBSO experience
0 1 2 3 4 5
0 S S S S S NRS
1 . S S S S NRS
2 . . S S S NRS
3 . . . NRS NRS NRS
4 . . . . NS NS
5 . . . . . NS
S=starter, NRS=near starter; NS=non starter
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Ideal case?
Nearly ideal ► Difference in age may influence reaction of firms► Difference in experience with the WBSO program
(that is, experience with R&D) may influence reaction of firms
Include control variables► age and WBSO experience► firm characteristics
Ex
tra
ta
x c
red
it, e
xtr
a R
&D
?
Vienna2006-04-24
Effect ?
Effect of policy on R&D wage expenditures is estimated between 10% and 20%