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Estimating the Benefits of Targeted R&D Subsidies


  • 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)


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.

Suggested Citation

  • Tuomas Takalo & Tanja Tanayama & Otto Toivanen, 2013. "Estimating the Benefits of Targeted R&D Subsidies," The Review of Economics and Statistics, MIT Press, vol. 95(1), pages 255-272, March.
  • Handle: RePEc:tpr:restat:v:95:y:2013:i:1:p:255-272

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    References listed on IDEAS

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    More about this item


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

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L59 - Industrial Organization - - Regulation and Industrial Policy - - - Other
    • 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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