Year

2012

Series

Upjohn Institute working paper ; 12-187

Abstract

This paper estimates the effects of an R&D tax credit in the state of Washington on job creation. The research uses micro-data on the job creation and tax credits received by individual firms in the state of Washington from 2004 to 2009. We correct for the endogeneity of R&D tax credits received by individual firms by using instrumental variables based in part on national industry factor shares for R&D. We estimate that this tax credit created jobs, but at a high cost. The cost per job-year created is estimated to be between $40,000 and $50,000. The credit was so high cost in part because the credit was non-refundable. As a result, about one-quarter of the firms receiving credits were maxed out on credit eligibility, so that the credit provided no marginal incentive for additional R&D spending or job creation.

Issue Date

June 25, 2012

Sponsorship

Washington Joint Legislative Audit and Review Committee (JLARC)

Subject Areas

ECONOMIC DEVELOPMENT; Industry studies; Entrepreneurship and innovation; Regional policy and planning; Business and tax incentives

Share

COinS