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Tax incentives or subsidies for R&D?

Author

Listed:
  • Busom, Isabel

    () (Universitat Autonoma de Barcelona)

  • Corchuelo, Beatriz

    () (Universidad de Extremadura)

  • Martinez Ros, Ester

    () (UNU-MERIT/MGSoG, and Universidad Carlos III de Madrid)

Abstract

This paper studies whether firms' use of R&D subsidies and R&D tax incentives are 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

Suggested Citation

  • Busom, Isabel & Corchuelo, Beatriz & Martinez Ros, Ester, 2012. "Tax incentives or subsidies for R&D?," MERIT Working Papers 056, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2012056
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    File URL: https://www.merit.unu.edu/publications/wppdf/2012/wp2012-056.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Becker, Lasse, 2015. "Effectiveness of public innovation support in Europe: Does public support foster turnover, employment and labour productivity?," Center for European, Governance and Economic Development Research Discussion Papers 236, University of Goettingen, Department of Economics.
    2. Heike Belitz & Anna Lejpras, 2016. "Financing patterns of R&D in small and medium-sized enterprises and the perception of innovation barriers in Germany," Science and Public Policy, Oxford University Press, vol. 43(2), pages 245-261.
    3. Tuomas Takalo, 2012. "Rationales and Instruments for Public Innovation Policies," Journal of Reviews on Global Economics, Lifescience Global, vol. 1, pages 157-167.
    4. Takalo, Tuomas & Tanayama, Tanja & Toivanen, Otto, 2017. "Welfare effects of R&D support policies," Research Discussion Papers 30/2017, Bank of Finland.
    5. Desiderio Romero-Jordán & María Delgado-Rodríguez & Inmaculada Álvarez-Ayuso & Sonia Lucas-Santos, 2014. "Assessment of the public tools used to promote R&D investment in Spanish SMEs," Small Business Economics, Springer, vol. 43(4), pages 959-976, December.
    6. repec:nea:journl:y:2017i:34:p:59-93 is not listed on IDEAS
    7. Heike Belitz & Anna Lejpras, 2014. "Financing Patterns of Innovative SMEs and the Perception of Innovation Barriers in Germany," Discussion Papers of DIW Berlin 1353, DIW Berlin, German Institute for Economic Research.
    8. Montmartin, Benjamin & Herrera, Marcos, 2015. "Internal and external effects of R&D subsidies and fiscal incentives: Empirical evidence using spatial dynamic panel models," Research Policy, Elsevier, vol. 44(5), pages 1065-1079.
    9. repec:eee:tefoso:v:127:y:2018:i:c:p:1-7 is not listed on IDEAS
    10. André Spithoven, Belgian Science Policy Office and Ghent University & Michel Dumont & Peter Teirlinck, Belgian Science Policy Office and KU Leuven, 2014. "Working Paper 08-14 - Public support for R&D and the educational mix of R&D employees," Working Papers 1408, Federal Planning Bureau, Belgium.
    11. A. Minniti & F. Venturini, 2014. "R&D Policy and Schumpeterian Growth: Theory and Evidence," Working Papers wp945, Dipartimento Scienze Economiche, Universita' di Bologna.
    12. Takalo, Tuomas & Tanayama, Tanja & Toivanen, Otto, 2013. "Market failures and the additionality effects of public support to private R&D: Theory and empirical implications," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 634-642.
    13. Felipa de Mello-Sampayo & Sofia de Sousa-Vale & Francisco Camoes, 2015. "Substitutability Between Drugs, Innovation, and Fiscal Policy in the Pharmaceutical Industry," Annals of Economics and Finance, Society for AEF, vol. 16(2), pages 273-289, November.
    14. Isabel Busom & Beatriz Corchuelo & Ester Martínez-Ros, 2015. "Dynamics of firm participation in R&D tax credit and subsidy programs," Working Papers wpdea1503, Department of Applied Economics at Universitat Autonoma of Barcelona.
    15. Segarra Blasco, Agustí, 1958- & Teruel, Mercedes & Bové Sans, Miquel Àngel, 2014. "A territorial approach to R&D subsidies: Empirical evidence for Catalonian firms," Working Papers 2072/242275, Universitat Rovira i Virgili, Department of Economics.
    16. repec:kap:iaecre:v:21:y:2015:i:1:p:13-31 is not listed on IDEAS
    17. Michel Dumont & André Spithoven & Peter Teirlinck, 2016. "Public Support for R&D and the Educational Mix of R&D Employees," CESifo Economic Studies, CESifo, vol. 62(3), pages 426-452.
    18. Simachev, Yuri & Kuzyk, Mikhail & Feygina, Vera, 2014. "Russian policies in support of innovation: elusive quest for efficiency," MPRA Paper 56750, University Library of Munich, Germany.
    19. Aristei, David & Sterlacchini, Alessandro & Venturini, Francesco, 2015. "The effects of public supports on business R&D: firm-level evidence across EU countries," MPRA Paper 64611, University Library of Munich, Germany.

    More about this item

    Keywords

    Research and Development; R&D; tax incentives; subsidies; policy mix;

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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