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

  • Isabel Busom


    (Departament d'Economia Aplicada, Universitat Autonoma de Barcelona)

  • Beatriz Corchuelo


    (Deparment of Economy, University of Extremadura)

  • Ester Martinez Ros


    (Departamento de Economía de la Empresa, Universidad Carlos III de Madrid and UNU-MERIT)

This paper studies whether firms’ use of R&D subsidies and R&D tax incentives is correlated to two sources of underinvestment in R&D, financing constraints and appropriability. We find that financially constrained SMEs are less likely to use R&D tax credits and more likely to obtain subsidies. SMEs using legal methods to protect their intellectual property are more likely to use tax incentives. Results are ambiguous for large firms. For both having previous experience in R&D increases the likelihood of using tax incentives, while it reduces the likelihood of using exclusively subsidies, suggesting that the latter induce entry into R&D. Results imply that direct funding and tax credits do not have the same ability to address each source of R&D underinvestment, and that on average subsidies may be better suited than tax credits at least for SMEs. From a policy perspective these tools may be complements rather than substitutes.

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Paper provided by Department of Applied Economics at Universitat Autonoma of Barcelona in its series Working Papers with number wpdea1212.

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Length: 50 pages
Date of creation: Dec 2012
Date of revision:
Handle: RePEc:uab:wprdea:wpdea1212
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  23. Blanes, J. Vicente & Busom, Isabel, 2004. "Who participates in R&D subsidy programs?: The case of Spanish manufacturing firms," Research Policy, Elsevier, vol. 33(10), pages 1459-1476, December.
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