Economics at your fingertips  

Long run effect of public grants and tax credits on R&D investment: A non-stationary panel data approach

Inmaculada Álvarez (), Chihwa Kao and Desiderio Romero-Jordán

Economic Modelling, 2018, vol. 75, issue C, 93-104

Abstract: R&D investment is a key factor in long run economic growth. This paper analyzes the effectiveness of public grants and tax credits used to promote long-run R&D investment. Cointegration techniques have been used to deal with the existence of common trends, which might lead to spurious correlation. In this context, we propose a new empirical strategy applying DOLS and FMOLS estimators to the cointegrated firms and the LSDV estimator to non-cointegrated firms. Cointegrated firms are those that invest persistently in R&D while non-cointegrated firms invest in a non-continuous or occasional way. A panel of 237 Spanish manufacturing firms for the 1990–2009 period is used. We find evidence that public grants are more effective for firms where R&D investment is persistent and the quality of projects matters. In addition, our results suggest that a tax credit is suitable for boosting long-run R&D investment as a whole, especially if the base amount of tax credit is incremental. Surprisingly, incremental tax credit is only in force in a few countries such as Italy, Korea, Mexico, Portugal, United States and Spain.

Keywords: R&D; Public grants; Tax credits; Effectiveness; Panel data (search for similar items in EconPapers)
JEL-codes: G31 G32 O32 E44 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.econmod.2018.06.011

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-08-29
Handle: RePEc:eee:ecmode:v:75:y:2018:i:c:p:93-104