Do R&D tax incentives lead to higher wages for R&D workers? Evidence from The Netherlands

Abstract

This paper examines the impact of the Dutch R&D tax incentive scheme on the wages of R&D workers. We construct firm specific R&D tax credit rates that vary over time following variations in the Dutch R&D tax incentive program. Using instrumental variables we estimate a wage-sharing model with an unbalanced firm-level panel data covering the period 1997-2004. The elasticity of the R&D wage with respect to the fraction of the wage supported by the fiscal incentives scheme is estimated at 0.2 in the short run and 0.24 in the long run.

Public Support for R&D and the Educational Mix of R&D Employees

“…According to the estimates for Norway by Haegeland and Møen (2007), a tax benefit of 100,000 Norwegian Krone is absorbed to the extent of 33,000 Krone (up to 55,000 for SMEs) in rising wages for researchers. Using firm-level data over the period 1997, Lokshin and Mohnen (2013 estimate that the impact on wages reduces the effectiveness of Dutch tax incentives for R&D by 25 percent. However, they rightly point out that regressions that fail to control for individual characteristics of R&D employees may suffer from an omitted variable bias.…”

R&D Policy and Schumpeterian Growth: Theory and Evidence

“…On the other hand, in col. (5), the effect of the R&D tax price is higher than that in all other regressions (-0.17). In contrast to the 37 A focused analysis on the impact of R&D policies on researchers' wages can be found in Goolsbee (1998) and Lokshin and Mohnen (2013).…”

Will the real R&D employees please stand up? Effects of tax breaks on firm-level outcomes

“…Goolsbee (1998) supported this finding by demonstrating that there is a relatively stable supply of scientists, with expenditure on pay rising significantly following increases in government subsidies to support R&D expenditure by firms. Lokshin and Mohnen (2013) showed firm-level evidence from the Netherlands that there is some wage response to R&D tax credits. Second, many studies flagged the issue of relabelling ordinary expenses as R&D, even though the extent of the problem has rarely been quantified.…”