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A computational analysis of R&D support programs

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  • Dagoberto Garza
  • Yahel Giat
  • Steven T. Hackman
  • Dan Peled

Abstract

We compare two common government R&D support programs, R&D tax credits and direct R&D grants. To study their effectiveness and the extent to which their design matters, we analyze these programs within a dynamic equilibrium model of imperfectly competitive industries. Adopting comprehensive welfare measures that take into account government, producer and consumer surpluses, we find that both schemes exhibit positive social returns. Mid-range R&D-intensive sectors exhibit higher social returns than either high or low R&D-intensive sectors. Both incentive schemes generate positive measures of R&D input additionality of magnitudes consistent with empirical R&D research. However, R&D grants that require firms to allocate subsidy funds to R&D spur less R&D than a more flexible R&D tax credit. Subsidy schemes can even induce competing firms to over-spend on R&D, generating negative producer surplus and possibly negative social returns.

Suggested Citation

  • Dagoberto Garza & Yahel Giat & Steven T. Hackman & Dan Peled, 2015. "A computational analysis of R&D support programs," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 24(7), pages 682-709, October.
    • Handle: RePEc:taf:ecinnt:v:24:y:2015:i:7:p:682-709
    DOI: 10.1080/10438599.2014.981004
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    Cited by:

    1. Caloffi, Annalisa & Mariani, Marco & Rossi, Federica & Russo, Margherita, 2018. "A comparative evaluation of regional subsidies for collaborative and individual R&D in small and medium-sized enterprises," Research Policy, Elsevier, vol. 47(8), pages 1437-1447.

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