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Tax incentives and direct support for R&D : what do firms use and why?

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  • Isabel Busom
  • Beatriz Corchuelo
  • Ester Martínez-Ros

Abstract

The measurement of the effects that public support to private R&D has on R&D investment and output has attracted substantial empirical research in the last decade. The focus of this research has mostly focused on testing for possible crowding out effects. There is virtually no study aiming at understanding how and why these effects may or may not be occurring. In addition, the effects of the two most common tools of public support, direct funding through grants and loans, and tax incentives, have been studied separately. We contribute to existing work by focusing on the determinants of the use by firms of these two mechanisms and their potential link to sources of market failures. We think this is an important step to assess impact estimates. Using firm-level data from the Spanish Community Innovation Survey (CIS), we find that firms that face financial constraints, as well as newly created firms, are less likely to use R&D tax credits and more likely to apply for and obtain direct public funding. We also find that large firms that care about knowledge protection are more likely to apply for and obtain direct funding, while SMEs are more likely to use tax incentives. Our results show that direct funding and tax credits, as currently designed, are not perfect substitutes because firms are heterogeneous, and suggest that from a social perspective, and provided that crowding out effects can be ruled out for both instruments, some combination of both may be preferable to relying on only one

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Bibliographic Info

Paper provided by Universidad Carlos III, Instituto sobre Desarrollo Empresarial "Carmen Vidal Ballester" in its series Business Economics Working Papers with number id-11-03.

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Date of creation: 2011
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Handle: RePEc:cte:idrepe:id-11-03

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Keywords: R&D subsidies; R&D tax credits; R&D; CIS; Policy evaluation;

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References

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Cited by:
  1. Dan Andrews & Chiara Criscuolo, 2013. "Knowledge-Based Capital, Innovation and Resource Allocation," OECD Economics Department Working Papers, OECD Publishing 1046, OECD Publishing.
  2. Sander Wennekers & al et, 2014. "Entrepreneurship in the Netherlands - The Top sectors," Scales Research Reports, EIM Business and Policy Research A201417, EIM Business and Policy Research.
  3. Michel Dumont, 2013. "Working Paper 01-13 - The impact of subsidies and fiscal incentives on corporate R&D expenditures in Belgium (2001-2009)," Working Papers, Federal Planning Bureau, Belgium 1301, Federal Planning Bureau, Belgium.

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