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Direct and Cross-Scheme Effects in a Research and Development Subsidy Program

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  • Veugelers, Reinhilde
  • Hottenrott, Hanna
  • Lopes Bento, Cindy

Abstract

This study investigates the effects of an R&D subsidy scheme on participating firms? net R&D investment. Making use of a specific policy design in Belgium that explicitly distinguishes between research and development grants, we estimate direct and cross-scheme effects on research versus development intensities in recipients firms. We find positive direct effects from research (development) subsidies on net research (development) spending. This direct effect is larger for research grants than for development grants. We also find cross-scheme effects that may arise due to complementarity between research and development activities. Finally, we find that the magnitude of the treatment effects depends on firm size and age and that there is a minimum effective grant size, especially for research projects. The results support the view that public subsidies induce higher additional investment particularly in research where market failures are larger, even when the subsidies are targeting development.

Suggested Citation

  • Veugelers, Reinhilde & Hottenrott, Hanna & Lopes Bento, Cindy, 2014. "Direct and Cross-Scheme Effects in a Research and Development Subsidy Program," CEPR Discussion Papers 10181, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10181
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    Citations

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    Cited by:

    1. Beck, Mathias & Junge, Martin & Kaiser, Ulrich, 2017. "Public Funding and Corporate Innovation," IZA Discussion Papers 11196, Institute of Labor Economics (IZA).
    2. Marino, Marianna & Lhuillery, Stephane & Parrotta, Pierpaolo & Sala, Davide, 2016. "Additionality or crowding-out? An overall evaluation of public R&D subsidy on private R&D expenditure," Research Policy, Elsevier, vol. 45(9), pages 1715-1730.
    3. Kelchtermans Stijn & Zacharewicz Thomas, 2016. "RIO Country Report 2015: Belgium," JRC Research Reports JRC101167, Joint Research Centre.
    4. George A Shinkle & Jo-Ann Suchard, 2019. "Innovation in newly public firms: The influence of government grants, venture capital, and private equity," Australian Journal of Management, Australian School of Business, vol. 44(2), pages 248-281, May.
    5. Simona Mateut, 2018. "Subsidies, financial constraints and firm innovative activities in emerging economies," Small Business Economics, Springer, vol. 50(1), pages 131-162, January.
    6. Hanna Hottenrott & Cindy Lopes-Bento, 2020. "Research versus Development: When are R&D Subsidies most Effective?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 17(04), pages 16-19, January.
    7. Daniel NEICU, 2019. "Evaluating the Effects of an R&D Policy Mix of Subsidies and Tax Credits," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 4(2), pages 1-13, June.
    8. Chapman, Gary & Lucena, Abel & Afcha, Sergio, 2018. "R&D subsidies & external collaborative breadth: Differential gains and the role of collaboration experience," Research Policy, Elsevier, vol. 47(3), pages 623-636.
    9. Simachev, Y. & Kuzyk, M. & Zudin, N., 2017. "The Impact of Public Funding and Tax Incentives on Russian Firms: Additionality Effects Evaluation," Journal of the New Economic Association, New Economic Association, vol. 34(2), pages 59-93.
    10. Sarah Demeulemeester & Hanna Hottenrott, 2015. "R&D subsidies and firms' cost of debt," Working Papers of Department of Management, Strategy and Innovation, Leuven 516028, KU Leuven, Faculty of Economics and Business (FEB), Department of Management, Strategy and Innovation, Leuven.
    11. Michel Dumont, 2015. "Working Paper 05-15 - Evaluation of federal tax incentives for private R&D in Belgium: An update," Working Papers 1505, Federal Planning Bureau, Belgium.
    12. Hud, Martin & Hussinger, Katrin, 2015. "The impact of R&D subsidies during the crisis," Research Policy, Elsevier, vol. 44(10), pages 1844-1855.
    13. Simona Mateut, 2015. "Subsidies, financial constraints and firm innovative activities in developing economies," Discussion Papers 2015/11, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).

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    More about this item

    Keywords

    R&d; Complementarity; Research subsidies; Development subsidies; Innovation policy;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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