The “sugar rush” from innovation subsidies: a robust political economy perspective

Anders Gustafsson (), Andreas Stephan, Alice Hallman and Nils Karlsson
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Anders Gustafsson: The Ratio Institute
Alice Hallman: The Ratio Institute
Nils Karlsson: The Ratio Institute
Authors registered in the RePEc Author Service: Anders Kärnä

Empirica, 2016, vol. 43, issue 4, No 4, 729-756

Abstract: Abstract The governments of most advanced countries offer some type of financial subsidy to encourage firm innovation and productivity. This paper analyzes the effects of innovation subsidies using a unique Swedish database that contains firm level data for the period 1997–2011, specifically informa tion on firm subsidies over a broad range of programs. Applying causal treatment effect analysis based on matching and a diff-in-diff approach combined with a qualitative case study of Swedish innovation subsidy programs, we test whether such subsidies have positive effects on firm performance. Our results indicate a lack of positive performance effects in the long run for the majority of firms, albeit there are positive short-run effects on human capital investments and also positive short-term productivity effects for the smallest firms. These findings are interpreted from a robust political economy perspective that reveals that the problems of acquiring correct information and designing appropriate incentives are so complex that the absence of significant positive long-run effects on firm performance for the majority of firms is not surprising.

Keywords: Innovation subsidies; Market failures; Causal treatment effect evaluation; Firm performance; CEM; Robust political economy (search for similar items in EconPapers)
JEL-codes: H25 O38 P16 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (15)

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DOI: 10.1007/s10663-016-9350-6

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