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.
An Analysis of the Employment Effects of the Washington High Technology Business and Occupation (B&O) Tax Credit: Technical ReportUpjohn Institute Working Papers
SeriesUpjohn Institute working paper ; 12-187
Issue DateJune 25, 2012
SponsorshipWashington Joint Legislative Audit and Review Committee (JLARC)
Citation InformationBartik, Timothy J., and Kevin Hollenbeck. 2012. "An Analysis of the Employment Effects of the Washington High Technology Business and Occupation (B&O) Tax Credit: Technical Report." Upjohn Institute Working Paper 12-187. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research.