The R&D Tax Credit in France: Assessment and Ex-Ante Evaluation of the 2008 Reform
This article presents an econometric analysis of the direct effects of the R&D tax credit (RTC) on private R&D investment and capital in France and proposes an ex ante evaluation of the major reform that has implemented, in 2008, a new regime of RTC much more generous than the previous ones. This new regime is fully based on nominal levels of R&D investment, using a 30% rate of tax reduction up to a high threshold. Since it entails significantly increased budgetary costs, it is particularly important to know whether or not it will be effective. To pursue this question we first measure the user cost of R&D capital and estimate an error correction model of a dynamic R&D demand function on a large panel data of French firms doing R&D over the period 2000-07, obtaining a preferred estimate of -0.4 for the long run elasticity of user cost of R&D capital. We then perform a micro-simulation of the effects of the 2008 RTC reform and compare it to a benchmark micro-simulation assuming no reform. We thus find that the benefit-to-cost ratio or budget multiplier —here understood as the ratio of additional private R&D expenditures to the lost tax revenue associated with the tax credit— would in the long run be about 0.7.