Volume-Based R&D tax Credits and Behavioural Additionality in YICs

This paper investigates the influence of policy support in terms of taxation-related financial slack on the innovative behaviour of young innovative companies (YICs). The focus is on behavioural additionality in R&D projects related to the introduction of a fiscal scheme for advance payment partial exemption in favour of highly qualified researchers in business enterprises in Belgium. The empirical analysis is based on a representative sample of YICs. Information regarding behavioural additionality is provided by a questionnaire sent in 2011 to all R&D active firms in Belgium. The survey combines quantitative and qualitative questions regarding the management of the money made available to the firm based on the fiscal wage pre-emption measure. We find evidence that the government support measures influence the firm's internal management capabilities that empower resource-constrained YICs to strengthen creative innovation behaviour in terms of risk and acceleration of R&D projects during economic turbulence. The unique situation of creation of a tax incentive at the moment of economic recession sheds new insights on the relation between government support and research management in YICs.