Evaluation of the Norwegian
SkatteFUNN scheme
Torbjørn Hægeland,
Statistics Norway
Jan 22, 2004
1
What is SkatteFUNN?

A system for tax deduction of R&D expenses in all
enterprises

Warranted by taxation laws
18 percent tax deduction of R&D expenses up to NOK 4
millions. If joint project with an approved R&D
institution, the upper limit is NOK 8 millions
Smaller enterprises 20 percent deduction


 <250 employees, turnover< € 250 mill or balance sheet total < €
27 mill, not owned more than 25 percent by larger enterprise
What is SkatteFUNN? (cont.)

Launched in 2002 – SMEs only

Extended to all enterprises in 2003
Simple application and reporting procedures

 Two weeks for application processing



2002: 2600 projects
2003: 4500 projects (expected) with expenses totalling
NOK 8 billions, tax deductions 1.6 billions
How much of this is projects that already were or would
be initiated even without the tax deduction scheme?
The evaluation

Initiated by the Ministry of Finance and the
Ministry of Trade and Industry

Norwegian Research Council administrates the
evaluation

Evaluation period: 2004 – 2007

Evaluator: Statistics Norway
Main issues to be addressed

Additionality: Does SkatteFUNN generate more R&D
and change in R&D behaviour in enterprises?

Returns: How does SkatteFUNN projects pay off?
Real R&D or reclassification of costs?
Does SkatteFUNN stimulate knowledge transfer from
R&D institutions to enterprises?
How does SkatteFUNN work together with other R&D
stimulating measures?
Administrative costs



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Empirical strategies

Extensive use of comprehensive micro data
bases for firms and plants
 Many based on administrative registers
 In addition: Manufacturing censuses, R&D surveys
innovation surveys etc.
 Use of common identifiers facilitates extensive linking of
different data sources
 Results in a unique panel data base for firms and plants,
covering also a long period prior to the launching of the
SkatteFUNN scheme

Special surveys to cover aspects of the scheme
not covered by existing data sources
Additionality

A key point in the evaluation
 Important criterion in itself, cf. polict goals
 Additionality a ”necessary condition for success”
 Greatest hope for ”precise and definitive answers”
Counterfactual question: What would R&D
investments have been without SkatteFUNN?
 Non-experimental setting – no formal control
group
 Strategies:

 Econometric evaluation
 Surveys and interviews
Additionality (cont.)

Before-after studies
 Predict R&D investments using firm-specific variables,
business cycles, tax rules etc.
 I.e: Control for the effects of other factors on R&D, and
isolate the effect of the SkatteFUNN scheme

”Quasi-experiments”
 Utilize discontinuities in the scheme
– Differences between small and large firms (particularly
in 2002)
– Limits on the tax deduction gives difference in
incentive effect
Additionality (cont.)

Two possible effects
 Effects given firm behaviour (”first order effect”)
 Change in firm behaviour, i.e. SkatteFUNN alters the
relation between R&D and other variables (”structural
breaks”)

Additionality may be non-uniform, and vary with
 Firm characteristics: Industry, region, workforce, previous
R&D, ”absorptive capacity”
 Environmental characteristics: Industry structure, ”nearby
R&D”, access to qualified personnel
 Type of project: Own project vs cooperation with research
institute
 Time horizon: Short- and long-term additionality
(adjustment costs and learning)
Additionality (cont.)

Sample of SkatteFUNN-firms asked about their
experiences, and whether the tax deduction has
led to more R&D

Compare to econometric analyses
Returns to SkatteFUNN projects

The potential effects come in three steps
1. Increased R&D investments
2. Increased pace of innovations
3. Effects on profitability

More demanding to identify and quantify than
input additionality



Effects are more delayed
Effects may appear other places than in the enterprise
(externalities)
Mainly econometric analyses

Quantifying externalities
 Difficult task
 Construct measures of ”relevant external R&D”
 How does such variables contribute to explain innovation,
profits and productivity?
Change in R&D behaviour

Does participation in SkatteFUNN projects
change the way firms organize their R&D
activity, and how R&D decisions are made?

Survey among participating firms
The role of research institutes

Extra incentive to cooperation between firms and
research institutes

Rationale: Assumption of larger effects

Separate econometric estimates of additionality and
returns for joint projects and ordinary projects

Qualitative survey:


What promotes/hinders cooperation?
Do the institutes change their strategies)
The interplay between SkatteFUNN
and other policy measures
Are there differences wrt. input additionality and
returns between tax incentives and direct
support, and do they stimulate different kinds of
R&D?
 Are the different measures complements or
substitutes?
 Is SkatteFUNN a ”low threshold measure”?

 Many firms that receive support through SkatteFUNN has
never received R&D support before. Will these firms apply
for other types of R&D support later on?
Evaluation output
Interim reports and reports from partial
analyses
 Final report in 2007

 Main questions:
– Should SkatteFUNN be continued?
– If yes, should it be modified

Policy recommendations must take into account
variations in:
 How directly effects can be observed and identified
 When effects occur. Not all effects can be observed within
the evaluation period