An Analysis of the Employment Effects of the Washington High Technology Business and Occupation (B&O) Tax Credit: Technical Report

W.E. Upjohn Institute for Employment Research Working Paper No. 12-187

32 Pages Posted: 7 Dec 2012

See all articles by Timothy Bartik

Timothy Bartik

W.E. Upjohn Institute for Employment Research

Kevin Hollenbeck

W.E. Upjohn Institute for Employment Research

Date Written: June 25, 2012

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.

Keywords: R&D tax credits, business incentives, state economic development policies, job creation

JEL Classification: R38, H71, J23

Suggested Citation

Bartik, Timothy and Hollenbeck, Kevin, An Analysis of the Employment Effects of the Washington High Technology Business and Occupation (B&O) Tax Credit: Technical Report (June 25, 2012). W.E. Upjohn Institute for Employment Research Working Paper No. 12-187, Available at SSRN: https://ssrn.com/abstract=2186116 or http://dx.doi.org/10.2139/ssrn.2186116

Timothy Bartik

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

Kevin Hollenbeck (Contact Author)

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States
269-343-5541 (Phone)
269-343-3308 (Fax)

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