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

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.price effect of tax incentives, tax credits, panel data model, R&D workers, wages