Corporate returns to subsidized R&D projects: Direct grants vs tax credit financing

Jarle Møen

No 2018/9, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: According to theory, direct R&D grants should be used for projects with low private returns, high social returns and high risk. R&D tax credits, on the other hand, allow firms to choose projects freely according to their private returns. Building on the standard R&D capital model, I develop a framework for estimating private returns to R&D projects with different types of funding. I apply the framework to estimate the corporate returns to subsidized R&D projects in Norway. Consistent with theory and a high quality grant allocation process, I find that projects funded through direct grants have private returns that are not significantly different from zero and with high variance, while the return to R&D projects financed by tax credits is just slightly below the return to R&D projects financed by own funds. The latter two return estimates are 16 % and 19 % respectively. I find that SMEs and small R&D performers have somewhat higher returns to R&D than larger firms. The overall return estimate across all types of finance is 15 %. This is in line with recent meta-regression results in the international literature.

Keywords: Returns to R&D; R&D capital model; Knowledge capital model; R&D subsidies; R&D grants; R&D tax credit; Innovation Policy; Technology policy; Norway (search for similar items in EconPapers)
JEL-codes: H25 O32 O38 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2018-05-31
New Economics Papers: this item is included in nep-ino, nep-knm, nep-ppm and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:nhhfms:2018_009

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