Tax incentives or subsidies for R&D?

Busom, Isabel, Corchuelo, Beatriz and Martínez-Ros, Ester (2012). Tax incentives or subsidies for R&D?. UNU-MERIT.

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  • Author Busom, Isabel
    Corchuelo, Beatriz
    Martínez-Ros, Ester
    Title Tax incentives or subsidies for R&D?
    Publication Date 2012
    Publisher UNU-MERIT
    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.
    Keyword R&D
    Tax incentives
    Subsidies
    Policy mix
    JEL H25
    L60
    038
    O31
    Copyright Holder UNU-MERIT
    Copyright Year 2012
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    Created: Wed, 11 Dec 2013, 17:06:32 JST