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The “sugar rush” from innovation subsidies: a robust political economy perspective

Author

Listed:
  • Anders Gustafsson

    () (The Ratio Institute
    Jönköping International Business School)

  • Andreas Stephan

    (The Ratio Institute
    Jönköping International Business School)

  • Alice Hallman

    (The Ratio Institute
    Stockholm School of Economics)

  • Nils Karlsson

    (The Ratio Institute)

Abstract

Abstract The governments of most advanced countries offer some type of financial subsidy to encourage firm innovation and productivity. This paper analyzes the effects of innovation subsidies using a unique Swedish database that contains firm level data for the period 1997–2011, specifically informa tion on firm subsidies over a broad range of programs. Applying causal treatment effect analysis based on matching and a diff-in-diff approach combined with a qualitative case study of Swedish innovation subsidy programs, we test whether such subsidies have positive effects on firm performance. Our results indicate a lack of positive performance effects in the long run for the majority of firms, albeit there are positive short-run effects on human capital investments and also positive short-term productivity effects for the smallest firms. These findings are interpreted from a robust political economy perspective that reveals that the problems of acquiring correct information and designing appropriate incentives are so complex that the absence of significant positive long-run effects on firm performance for the majority of firms is not surprising.

Suggested Citation

  • Anders Gustafsson & Andreas Stephan & Alice Hallman & Nils Karlsson, 2016. "The “sugar rush” from innovation subsidies: a robust political economy perspective," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(4), pages 729-756, November.
  • Handle: RePEc:kap:empiri:v:43:y:2016:i:4:d:10.1007_s10663-016-9350-6
    DOI: 10.1007/s10663-016-9350-6
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    Cited by:

    1. Gustavsson Tingvall, Patrik & Videnord, Josefin, 2017. "Regional Effects of Publicly Sponsored R&D Grants on SME Performance," Ratio Working Papers 289, The Ratio Institute.
    2. Michael Böheim & Harald Oberhofer, 2016. "Special Issue: Challenges for Europe 2050: Selected papers of the EUROFRAME Conference 2015 and the WWWforEurope Project," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 43(4), pages 657-660, November.
    3. Nilsson, Pia & Backman, Mikaela & Bjerke, Lina & Maniriho, Aristide, 2017. "One cow per poor family: effects on consumption and crop production in Rwanda," Working Paper Series in Economics and Institutions of Innovation 462, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.

    More about this item

    Keywords

    Innovation subsidies; Market failures; Causal treatment effect evaluation; Firm performance; CEM; Robust political economy;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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