evaluation of the norwegian r&d tax credits 160919... · 2020. 1. 13. · norwegian tax credits...

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Evaluation of the Norwegian R&D tax credits Marina Rybalka Statistics Norway Joint workshop on firms, industries and productivity Lisboa (INE) | September 16, 2019

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Page 1: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Evaluation of the Norwegian R&D tax credits

Marina RybalkaStatistics Norway

Joint workshop on firms, industries and productivity

Lisboa (INE) | September 16, 2019

Page 2: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Norwegian tax credits SkatteFUNN

24.09.2019 | Slide 2

• Launched in 2002

• 18 percent (20 for SMEs) tax deduction of certain amount of firm’s R&D expenses

– up to EUR 0.5 million in the start– up to EUR 2.5 million today– works as a grant in case if the tax credit exceeds the tax payable by the firm or if the firm is not in

a tax position

• Simple application and reporting procedures • No discrimination between types of projects or industries• Favouring collaboration with R&D institutions

– project cup is doubled in case of joint project with an approved R&D institution

Page 3: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Main changes in the scheme2002-2017

24.09.2019 | Slide 3

Timeline for SkatteFUNN

Tax credit SMEs: 20 pct. Intramural R&D: NOK 4 mill Purchased R&D: NOK 8 mill

Total: NOK 8 mill Introduction of SkatteFUNN

2002

2003

Tax credit SMEs: 20 pct. Tax credit others: 18 pct.

2007

Cap on hourly wage: NOK 500

Cap on yearly hours: 1 850

2009

Intramural R&D: NOK 5.5 mill Purchased R&D: NOK 11 mill

Total: NOK 11 mill

2011

Changes in definition of R&D and SMEs and in calculation

of hourly wage. Cap on hourly wage: NOK 530

2014

Intramural R&D: NOK 8 mill Purchased R&D: NOK 22 mill

Total: NOK 22 mill Cap on hourly wage: NOK 600

Intramural R&D: NOK 15 mill Purchased R&D: NOK 33 mill

Total: NOK 33 mill

2015

2016

Intramural R&D: NOK 20 mill Purchased R&D: NOK 40 mill

Total: NOK 40 mill

Intramural R&D: NOK 25 mill Purchased R&D: NOK 50 mill

Total: NOK 50 mill

2017

Page 4: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Thresholds for tax-deductible R&D expendituresNOK million. 2002-2018

0

5

10

15

20

25

30

35

40

45

50

0

5

10

15

20

25

30

35

40

45

50

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Intramural Purchased (and total)

24.09.2019

Changes in thresholds

| Slide 4

Page 5: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Changes in firms exploiting SkatteFUNNNumber of firms by firm subsidy size. NOK 1000. 2002-2015

24.09.2019

Use of SkatteFUNN

| Slide 5

0

500

1000

1500

2000

2500

3000

3500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

>1600[1440,1600](1100;1440)[990,1100](800;990)[720,800]<720

Page 6: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Changes in firms exploiting SkatteFUNNShare of firms by firm subsidy size. NOK 1000. 2002-2015

24.09.2019

Use of SkatteFUNN

| Slide 6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

>1600[1440,1600](1100;1440)[990,1100](800;990)[720,800]<720

Page 7: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality• A key point in the evaluation

– Important criterion in itself, cf. policy goals– A ”necessary condition for success”

• Counterfactual question: What would R&D investments have been without SkatteFUNN?

• Challenges:– Non-experimental setting – SkatteFUNN is a general scheme– no formal control group

• Strategies:– Econometric evaluation (exploring changes in the scheme)– Surveys and interviews

24.09.2019 | Slide 7

Page 8: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Construction of R&D expenditures variable

1. Reported R&D expenditures from R&D survey

2. Reported R&D expenditures in 3 years period in SkatteFUNN application

3. Information on direct subsidies from other public agencies and programs– Research Council of Norway– EU (FP7, H2020)– Innovation Norway– Regional research funds

24.09.2019 | Slide 8

Page 9: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

R&D data from Tax authorities compared with other data sources. In thousand NOK

0

5000

10000

15000

20000

25000

30000

35000

0

5000

10000

15000

20000

25000

30000

35000

R02-03 R04-06 R07-08 R09-10 R11-13 R14-15

<720 [720,800] (800;990) [990,1100] (1100;1440) [1440,1600] >1600

24.09.2019

Firms report to the Tax authorities only part of R&D that is eligible for the tax credit

| Slide 9

Page 10: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

24.09.2019

«Discontinuity approach» (jf. Hægeland og Møen, 2007)

| Slide 10

0.000 %

0.005 %

0.010 %

0.015 %

0.020 %

0.025 %

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000

Estimated distribution of intramural R&D as reported in application to SkatteFUNN. NOK 1 000. 2003-2013

Page 11: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Thresholds for tax-deductible R&D expendituresNOK million. 2002-2018

0

5

10

15

20

25

30

35

40

45

50

0

5

10

15

20

25

30

35

40

45

50

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Intramural Purchased (and total)

24.09.2019

Changes in thresholds

| Slide 11

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Input additionality

Only firms with R&D expenditures under the project cost cap are stimulated to increase their R&D efforts

Probability to start R&D (extensive margin) Positive effect after introduction of the scheme, no significant effect of the

increase in 2009

Probability to continue R&D Positive effect in both studies

BFTB: 1.01 (0.96/0.73) vs. 2 in Hægeland og Møen, 2007 relevant only for firms with past R&D>0 (past R&D > 1 NOK million/past R&D > 2

NOK million) post-crisis period

24.09.2019

«Discontinuity approach» (jf. Hægeland og Møen, 2007)

| Slide 12

Page 13: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 13

Sources: Statistics Norway and Samfunnsøkonomisk analyse

0

500

1000

1500

2000

2500

3000

3500

0

500

1000

1500

2000

2500

3000

3500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

New users of Skattefunn by tax credit size

>1600

[1440,1600]

(1100;1440)

[990,1100]

(800;990)

[720,800]

(600;720)

<=600

Total active

Page 14: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

• Explore all changes in the scheme

• Main idea: Follow different SkatteFUNN-user «generations» over different policy regimes– allow firms that begin using the policy early differ from

firms that start using the policy later • probably encouraged by the specific policy change

• Period: 1999-2015– 1999-2001 is a period before SkatteFUNN

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 14

Page 15: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 15

Sources: Statistics Norway and Samfunnsøkonomisk analyse

0

500

1000

1500

2000

2500

3000

3500

0

500

1000

1500

2000

2500

3000

3500

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

New users of Skattefunn by tax credit size

>1600

[1440,1600]

(1100;1440)

[990,1100]

(800;990)

[720,800]

(600;720)

<=600

Total active

1

2

34

5

6

Page 16: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

• Main challenge: selection into the scheme– a direct comparison of SkatteFUNN-users and non-users will

give a biased result

• Matching procedure: – pick control-firms among non-users of SkatteFUNN that are as

similar as possible to SkatteFUNN-users prior to introduction of the policy

– Make these two groups more comparable– BUT loose some information

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 16

Page 17: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

• Results of matching procedure for firms with information on previous R&D• Stratification by firms’ industry, region and cohort, and use of additional

public support

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 17

Before match After match

SKF-firmsnot

SKF-firms %bias SKF-firmsnot SKF-

firms %biasNo. of employees 21.98 2.64 36.1*** 10.71 10.07 2.2Total assets 77882 14261 5.8*** 14089 12304 2.9Organisational age 3.35 0.45 44.4*** 3.08 3.06 0.2Share of high-skilled 0.36 0.13 68.5*** 0.31 0.30 2.7Financial liqudity rate 36.62 81.42 -20.3*** 42.49 44.86 -1.2Dummies:R&D experience 0.15 0.002 58.0*** 0.04 0.03 9.4***Other types of support 0.30 0.004 90.2*** 0.02 0.02 0No. firms 7060 227934 3089 11199F-test 3418.44*** 1.2

Page 18: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 18

Graphical test of common trend assumption, entire population

Page 19: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 19

Graphical test of common trend assumption, after matching4

56

78

9M

ean

log

R&D

expe

ncie

s

199920002001200220032004200520062007200820092010201120122013

Control G02-03G04-06 G07-08G09-10 G11-13G14-15

Page 20: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

R&D expenditures for early users generation against the benchmark of no use

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 20

0

200

400

600

800

1000

1200

1400

SkatteFUNN-user generetion 2002-2003

Not SKF-firms G02-03: no SKF G02-03: with SKF

Page 21: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 21

0%

20%

40%

60%

80%

100%

R02-03 R04-06 R07-08 R09-10 R11-13 R14-15

Effects of SKF partisipation on R&D expenditures

G02-03 G04-06 G07-08 G09-10 G11-13 G14-15

Page 22: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality

• “Bang for the buck”: main model

24.09.2019

«Generalized diff-in-diff approach» (jf. Mohnen et al.,2017)

| Slide 22

RegimeAll generations G02-03 G04-06 G07-08 G09-10 G11-13 G14-15

R02-03 2.22 2.22R04-06 2.68 2.86 2.41R07-08 2.34 2.26 2.83 1.63R09-10 1.95 2.21 2.38 0.74 2.15R11-13 1.60 3.07 1.85 0.65 1.64 0.90R14-15 1.66 2.34 2.47 1.42 2.17 1.45 1.15Total 2.07 2.55 2.42 1.06 1.91 1.12 1.15For firms with past R&D>0 2.04 2.47 2.33 0.94 1.99 1.29 1.17

Page 23: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Input additionality• We find positive and significant input additionality

– but effects vary depending on the type of change and the type of user-generation

• For all generations input additionality is strongest in the start of use of SkatteFUNN and is declining thereafter – until most recent policy change with significant increase of project cost

cap

• Not significant difference in BFTB between large and small firms, but between large and small projects

• Much higher BFTB for firms with zero past R&D

24.09.2019

Main conclusions

| Slide 23

Page 24: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Innovation output analysis

24.09.2019 | Slide 24

• Probability of different types of innovations (probit model)– new product, new process, new product to the marked

• Innovative sales (ordered probit model)

• Probability of different types of protection (probit model)– Patent– Trademark– Design– Copyright

• Main data sources: CIS 2001-2014– merged with the matched data from the previous stage

Page 25: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Innovation output analysis

24.09.2019 | Slide 25

• Main model– Split the observed R&D intensity into two parts

• Additional R&D intensity generated by a tax credit, Δr– the treatment effect on the treated predicted for each firm from the input

additionality analysis

• Counterfactual R&D intensity that each company would have done in the absence of a tax credit, rc

– obtained as the difference between r and Δr

• Inspired by Czarnitzki and Hussinger (2004), Cerulli and Poti(2012) and Freitas et al. (2017)

Page 26: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Innovation output analysis

24.09.2019 | Slide 26

• Main model: types of innovationNew or improved

productNew or improved

processNew product for the

markedShare of turnover

from new products(1) (2) (1) (2) (1) (2) (1) (2)

Additional R&D intensity, Δr 0.030*** 0.047*** 0.023*** 0.050*** 0.029*** 0.041*** 0.012* 0.031***Counterfactual R&D intensity, rc 0.070*** 0.053*** 0.045*** 0.033*** 0.051*** 0.045*** 0.068*** 0.064***Share of high-skilled 0.094** 0.086 -0.078** -0.083 0.076** 0.107** 0.046 -0.066Cooperation: in the group 0.065** 0.065** 0.030 0.030 0.038* 0.036 0.01 -0.011Cooperation: another firm 0.197*** 0.167*** 0.155*** 0.133*** 0.126*** 0.091*** 0.109*** 0.070**Cooperation: university -0.009 -0.011 0.063** 0.053* 0.022 0.027 0.011 -0.002Yt-1 - 0.203*** - 0.148*** - 0.163*** - 0.156***Number of observations 4401 2158 4391 2151 4377 2158 3934 1839Pseudo R2 0.29 0.34 0.18 0.20 0.26 0.29 0.14 0.15

Page 27: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Innovation output analysis

24.09.2019 | Slide 27

• Main model: types of innovationNew or improved

productNew or improved

processNew product for the

markedShare of turnover

from new products(1) (2) (1) (2) (1) (2) (1) (2)

Additional R&D intensity, Δr 0.030*** 0.047*** 0.023*** 0.050*** 0.029*** 0.041*** 0.012* 0.031***Counterfactual R&D intensity, rc 0.070*** 0.053*** 0.045*** 0.033*** 0.051*** 0.045*** 0.068*** 0.064***Share of high-skilled 0.094** 0.086 -0.078** -0.083 0.076** 0.107** 0.046 -0.066Cooperation: in the group 0.065** 0.065** 0.030 0.030 0.038* 0.036 0.01 -0.011Cooperation: another firm 0.197*** 0.167*** 0.155*** 0.133*** 0.126*** 0.091*** 0.109*** 0.070**Cooperation: university -0.009 -0.011 0.063** 0.053* 0.022 0.027 0.011 -0.002Yt-1 - 0.203*** - 0.148*** - 0.163*** - 0.156***Number of observations 4401 2158 4391 2151 4377 2158 3934 1839Pseudo R2 0.29 0.34 0.18 0.20 0.26 0.29 0.14 0.15

Page 28: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Innovation output analysis

24.09.2019 | Slide 28

• Main model: types of innovation protection

Patent Trademark Design Copyright(1) (2) (1) (2) (1) (2) (1) (2)

Additional R&D intensity, Δr 0.011** 0.022*** -0.003 0.003 0.002 0.010 -0.006 -0.011Counterfactual R&D intensity, rc 0.025*** 0.018*** 0.029*** 0.024*** 0.016*** 0.016** 0.014*** 0.018***Share of high-skilled 0.092*** 0.083* 0.021 0.001 0.005 0.050 0.079*** 0.111**Cooperation: in the group 0.027 -0.009 0.048** -0.006 0.034** 0.001 0.001 -0.023Cooperation: another firm 0.033** 0.045** 0.024 0.083*** 0.027* 0.080*** 0.022 0.037Cooperation: university 0.022 0.004 0.040* 0.030 -0.009 -0.026 0.015 0.026Yt-1 - 0.197*** - 0.169*** - 0.152*** - 0.145***Number of observations 4382 2158 4398 2158 3988 1807 3988 1821Pseudo R2 0.19 0.29 0.14 0.21 0.17 0.25 0.14 0.19

Page 29: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Innovation output analysis• We find positive and significant results for different

innovation types– But effects vary depending on the type of innovation

• We find positive and significant result for patents– But not for other types of innovation protection

• The results hold even when we control for persistency of innovation

• Skills of employees and cooperation with other firms are important for innovation

24.09.2019

Main conclusions

| Slide 29

Page 30: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Other results

• The estimated effect of R&D capital on labour productivity is positive and significant

• The external effects of R&D are difficult to measure quantitively

• We find no any significant increase in cooperation after expansions of the scheme

– However, it was an increase in cooperation after the introduction of the scheme

24.09.2019

Main conclusions

| Slide 30

Page 31: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Misuse• 5 risk criteria defined by the Tax authorities

– high-risk group when the firm meets 2 of 5 criteria

• 150 randomized controls in high-risk group and 50 in low-risk group

• Misuse of SkatteFUNN does occur– For about 10 percent of the controlled firms it was revealed discrepancies

between hours reported to the government and in their SkatteFUNN-claim– About 13 percent of the firms reported ordinary costs as R&D investments

• However, the overall BFTB > 1 even after adjustments for the misuse

24.09.2019

Main conclusions

| Slide 31

Page 32: Evaluation of the Norwegian R&D tax credits 160919... · 2020. 1. 13. · Norwegian tax credits SkatteFUNN 24.09.2019 | Slide 2 • Launched in 2002 • 18 percent (20 for SMEs) tax

Thank you!Marina Rybalka

[email protected]