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

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  • Lokshin, Boris

    (UNU-MERIT)

  • Mohnen, Pierre

    (UNU-MERIT)

Abstract

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 governments 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.

Suggested Citation

  • Lokshin, Boris & Mohnen, Pierre, 2008. "Wage effects of R&D tax incentives:Evidence from the Netherlands," MERIT Working Papers 2008-034, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    • Handle: RePEc:unm:unumer:2008034
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    2. Dan Andrews & Chiara Criscuolo, 2013. "Knowledge-Based Capital, Innovation and Resource Allocation," OECD Economics Department Working Papers 1046, OECD Publishing.

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    More about this item

    Keywords

    price effect of tax incentives; tax credits; panel data model; R&D workers; wages;
    All these keywords.

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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