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

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.

► We examine the impact of Dutch R&D tax incentive scheme on the wages of R&D workers. ► Our estimates of the wage effects are 0.2 in the short run and 0.24 in the long run. ► Researchers need to consider potentially sizable wage effects of R&D support schemes. ► Efficiency of R&D tax incentives could be enhanced if the wage effect is avoided.