R&D grant and tax credit support for foreign-owned subsidiaries: Does it pay off?

Helena Lenihan, Kevin Mulligan (), Justin Doran, Christian Rammer and Olubunmi Ipinnaiye

No 22-003, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Foreign-owned subsidiaries make significant contributions to national Research and Development (R&D) in many host countries. Policymakers often support subsidiaries through R&D grants and R&D tax credits. A key objective of this funding is to leverage R&D-driven firm performance benefits for the host economy. However, the subsidiary's parent firm may decide not to exploit the results from publicly-funded R&D projects in the host country. Therefore, supporting subsidiaries' R&D presents a risk that significant amounts of public funding may translate into little, or no payoffs for the host economy. Our study provides the first evaluation of 1) whether public R&D funding stimulates additional R&D investment in subsidiaries, 2) whether policy-induced R&D drives subsidiary performance, and 3) the differential effects of R&D grants and R&D tax credits. Drawing on a unique panel dataset for Ireland (2007-2016), we find that both R&D supports drive subsidiary R&D, resulting in substantial host country firm performance benefits.

Keywords: Public funding for R&D; Firm performance; Firm ownership; Foreign-owned subsidiaries; Multinational enterprise; R&D tax credit; R&D grant; Policy evaluation (search for similar items in EconPapers)
JEL-codes: D04 D22 F21 F23 H25 O25 O31 O38 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ino, nep-pbe, nep-ppm, nep-sbm and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:22003

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