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The "Sugar Rush" from Innovation Subsidies. A Robust Political Economy Perspective

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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 information 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.

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  • Gustafsson, Anders & Stephan, Andreas & karlson, Nils & Hallman, Alice, 2016. "The "Sugar Rush" from Innovation Subsidies. A Robust Political Economy Perspective," Ratio Working Papers 270, The Ratio Institute.
  • Handle: RePEc:hhs:ratioi:0270
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    2. Gustavsson Tingvall, Patrik & Videnord, Josefin, 2017. "Regional Effects of Publicly Sponsored R&D Grants on SME Performance," Ratio Working Papers 289, The Ratio Institute.
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    5. Nils Karlson & Christian Sandström & Karl Wennberg, 2021. "Bureaucrats or Markets in Innovation Policy? – a critique of the entrepreneurial state," The Review of Austrian Economics, Springer;Society for the Development of Austrian Economics, vol. 34(1), pages 81-95, March.
    6. David S. Lucas & Caleb S. Fuller & Ennio E. Piano & Christopher J. Coyne, 2018. "Visions of entrepreneurship policy," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing, vol. 7(4), pages 336-356, December.
    7. Eriksson, Klas & Ernkvist, Mirko & Laurell, Christofer & Moodysson, Jerker & Nykvist, Rasmus & Sandström, Christian, 2019. "A revised perspective on innovation policy for renewal of mature economies – Historical evidence from finance and telecommunications in Sweden 1980–1990," Technological Forecasting and Social Change, Elsevier, vol. 147(C), pages 152-162.
    8. Giulio Cainelli & Carlo Ciccarelli & Roberto Ganau, 2021. "Administrative reforms, urban hierarchy, and local population growth. Lessons from Italian unification," Papers in Evolutionary Economic Geography (PEEG) 2109, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Feb 2021.
    9. 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.
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    11. Dettmann, Eva & Giebler, Alexander & Weyh, Antje, 2019. "flexpaneldid: A Stata command for causal analysis with varying treatment time and duration," IWH Discussion Papers 5/2019, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    Innovation subsidies; market failures; causal treatment effect evaluation; firm performance; CEM; robust political economy;
    All these keywords.

    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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