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Estimating the Benefits of Targeted R&D Subsidies

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Author Info

  • Tuomas Takalo

    (Bank of Finland and Jyväskylä University School of Business and Economics)

  • Tanja Tanayama

    (National Audit Office of Finland)

  • Otto Toivanen

    (Katholieke Universiteit Leuven)

Abstract

We study the expected welfare effects of targeted R&D subsidies using project-level data from Finland. We model the application and R&D investment decisions of firms and the subsidy-granting decision of the public agency in charge of the program. Our model and institutional environment allow us to identify different benefits and costs of the R&D subsidy program. We find that expected effects of subsidies are very heterogeneous and estimated application costs low on average. The social rate of return on targeted subsidies is 30% to 50%, but spillover effects of subsidies are smaller than effects on firm profits. © 2013 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Bibliographic Info

Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 95 (2013)
Issue (Month): 1 (March)
Pages: 255-272

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Handle: RePEc:tpr:restat:v:95:y:2013:i:1:p:255-272

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Web page: http://mitpress.mit.edu/journals/

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Related research

Keywords: applications; financing of innovations; R&D investments; selection; subsidies; treatment program; welfare;

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Cited by:
  1. Raffaello Bronzini & Paolo Piselli, 2014. "The impact of R&D subsidies on firm innovation," Temi di discussione (Economic working papers) 960, Bank of Italy, Economic Research and International Relations Area.
  2. Pere Arqué-Castells & Pierre Mohnen, 2012. "Sunk costs, extensive R&D subsidies and permanent inducement effects," Working Papers 2012/13, Institut d'Economia de Barcelona (IEB).
  3. Czarnitzki, Dirk & Lopes-Bento, Cindy, 2012. "Value for money? New microeconometric evidence on public R&D grants in Flanders," ZEW Discussion Papers 12-034, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Busom, Isabel & Corchuelo, Beatriz & Martinez Ros, Ester, 2012. "Tax incentives or subsidies for R&D?," MERIT Working Papers 056, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  5. Takalo, Tuomas & Tanayama, Tanja & Toivanen, Otto, 2013. "Market failures and the additionality effects of public support to private R&D: Theory and empirical implications," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 634-642.
  6. Hottenrott, Hanna & Lopes-Bento, Cindy, 2014. "(International) R&D collaboration and SMEs: The effectiveness of targeted public R&D support schemes," Research Policy, Elsevier, vol. 43(6), pages 1055-1066.
  7. Benjamin Montmartin & Marcos Herrera, 2014. "Internal and External Effects of R&D Subsidies and Fiscal Incentives: Empirical Evidence Using Spatial Dynamic Panel Models," GREDEG Working Papers 2014-09, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  8. Isabel Busom & Beatriz Corchuelo & Ester Martinez Ros, 2012. "Tax incentives and direct support for R&D: What do firms use and why?," Working Papers wpdea1212, Department of Applied Economics at Universitat Autonoma of Barcelona.
  9. LOPES BENTO Cindy & CZARNITZKI Dirk, 2012. "Value for money? New microeconomic evidence on public R&D grants in Flanders," CEPS/INSTEAD Working Paper Series 2012-19, CEPS/INSTEAD.
  10. Huergo, Elena & Moreno, Lourdes, 2014. "National or international public funding? Subsidies or loans? Evaluating the innovation impact of R&D support programmes," MPRA Paper 54218, University Library of Munich, Germany.

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