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Tax incentives or subsidies for R&D?

  • Busom, Isabel

    ()

    (Universitat Autonoma de Barcelona)

  • Corchuelo, Beatriz

    ()

    (Universidad de Extremadura)

  • Martinez Ros, Ester

    ()

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

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

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File URL: http://www.merit.unu.edu/publications/wppdf/2012/wp2012-056.pdf
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Paper provided by United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT) in its series MERIT Working Papers with number 056.

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Date of creation: 2012
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Handle: RePEc:unm:unumer:2012056
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