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On 11 April, the State Secretary of Economic Affairs and Climate presented the evaluation of the WBSO 2011-2017 carried out by Dialogic in collaboration with APE and UNU-MERIT to the House of Representatives. This was accompanied by the cabinet's response in which the State Secretary addresses the legitimacy of the WBSO and the 12 recommendations made in the evaluation. The evaluation is innovative because not only were the econometric analyses conducted in a new way for the Netherlands (known as the user cost approach), but also, for the first time, more insights were gained into the so-called spillover effects through an extensive survey and text mining analyses conducted in collaboration with RVO on the WBSO data.
The WBSO is considered the cornerstone of Dutch innovation policy. It is a scheme that garners political attention due to its design and impact, both within the target group (companies engaged in R&D). Internationally, there is also significant interest in such tax credit schemes. Methodologically, the evaluation stands out as one of the few instruments suitable for advanced econometric impact assessment.
### What is the WBSO?
Since 1994, the Netherlands has had the Research & Development Promotion Act (WBSO) as a fiscal stimulus scheme for Research & Development (R&D) in companies. The primary objective of the WBSO is to increase the R&D efforts of companies. Additionally, the WBSO aims to enhance the business climate for R&D activities. R&D currently qualifying for the WBSO includes 'technical scientific research' and the 'development of technically new products, production processes, and software'. In 2019, the WBSO offers a deduction rate of 32% in the first bracket (up to €350,000, and 40% for starters) and a deduction rate of 16% in the second bracket. The scheme is executed by RVO.nl and underwent several changes during the evaluation period, used in evaluating the effectiveness of the scheme (econometrically). With nearly €1.2 billion in reduced tax liability claimed in 2017, the WBSO, alongside the Innovation Box (budget impact in 2017 €1.554 million), is the primary scheme in the Netherlands focused on stimulating R&D in individual companies and improving the business climate for innovative activities. Many developed countries have similar R&D tax credit schemes. The share of generic, indirect instruments (WBSO and Innovation Box) in the total budget for business-oriented R&D stimulation is relatively high in the Netherlands compared internationally, and it has further increased during the evaluation period. Direct support for R&D in companies through subsidies has relatively decreased.
### Mixed-Method Evaluation
The evaluation aimed to determine to what extent the WBSO over the period 2011-2017 (and the RDA over the period 2012-2015) has effectively and efficiently contributed to increasing R&D efforts in companies in the Netherlands (1st order effect), innovation (2nd order effects), business performance (3rd order effects), and the (fiscal) business climate for R&D activities in the Netherlands. To answer this composite key question, insight into target group reach, scheme usage, implementation method, implementation costs, and administrative burdens of the WBSO is also needed. The evaluation employed a combination of methods including desk study, analysis of administrative data (partially in conjunction with linked CBS data), econometric analyses, extensive online survey, interviews/group discussions, and text mining analysis.
### Overall Assessment
We assessed the WBSO as a cost-efficient scheme, appreciated by the majority of users, with a demonstrably positive effect on companies' R&D payroll. It is also plausible that the WBSO contributes – among other factors – to the business climate for those companies organizing their R&D activities on an international scale ("internationals"). In this evaluation, we did not compare the economic benefits of the additional R&D due to the WBSO with the economic costs of the WBSO (cost-benefit analysis). As such, macro-efficiency can only be approximated. We did, however, fairly well capture the so-called spillover effects (including through the large-scale online survey involving over 1600 WBSO-users). We conclude that when accounting for spillover effects, it is plausible that the benefits of the WBSO outweigh the costs.
Based on the evaluation, a total of 26 conclusions were formulated. Here are the top-5:
- During the evaluation period 2011-2017, the estimated short-term Bang For The Buck (BFTB) was 0.7, and for the long term, it was 0.9. This means that for WBSO participants themselves, every euro of tax relief in the short term leads to an estimated additional 70 cents in R&D payroll. In the long term, this is estimated at 90 cents per euro of tax relief. Therefore, 1 euro of additional tax relief over an 'infinite period' is estimated to result in 0.90 additional R&D payroll. This is the direct effect of the WBSO on R&D payroll. Survey results and literature suggest additional spillover effects. Our econometric estimates indicate that the effectiveness of the WBSO in terms of BFTB has slightly reduced over time (meaning, over the longer period of 2008 - 2017, we estimate slightly higher BFTB values).
- Based on self-reported behavioural changes (from the survey), the WBSO contributes in specific user groups to the professionalization of R&D activities. This includes attracting specialized personnel and developing skills for planning and collaboration in the R&D process. Small and medium-sized companies generally report more behavioural effects than larger companies.
- According to survey results (and in line with the rationale), the WBSO contributes to R&D investments that companies find relatively less easy to monetize themselves. Participants indicating their R&D efforts depend on the WBSO also generate more spillovers. Besides generating spillovers, the WBSO is also relevant for utilizing them.
- For companies organizing their R&D on an international scale or considering this – which by definition is a limited selection from the population of WBSO users – the WBSO contributes to a reduction in effective tax pressure, a crucial (but not the only) requirement for a favourable business climate for companies engaged in R&D activities.
- The estimated administrative burdens (sum of intermediary efforts and own administration costs) of the WBSO in 2017 likely exceed the burdens estimated at the end of the previous evaluation period (8% of the WBSO budget). The self-reported own costs of all companies amount to an estimated 4.4% - 7% of the granted WBSO budget in 2017. The estimated costs due to intermediary involvement amount to 3.8% of the granted WBSO budget.
