Thanks, but No Thanks: Companiess Response to R&D Tax Credits

Abstract

This paper starts from the observation that the majority of firms in Belgium that were eligible for a newly introduced R&D tax credit system does not use it, or is slow to adopt, despite significant potential cost savings. We hypothesize that the R&D support landscape is complex for firms to navigate and that they may cope by relying on their peers’ behaviour to inform their own adoption decisions. We identify endogenous peer effects in industry- and location-based peer groups by exploiting the intransitivity in firms’ peer group networks as well the variation in peer group sizes. The results show that firms’ decisions to use R&D tax credits are indeed influenced by the choices of their peers, primarily in the time window following the introduction. Our analysis complements the literature on peer effects in firm decision making and suggests improvements for the communication of new public support measures for business R&D.