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Participation inertia in R&D tax incentive and subsidy programs

Isabel Busom (), Beatriz Corchuelo Martínez-Azúa () and Ester Martínez-Ros ()

Small Business Economics, 2017, vol. 48, issue 1, No 9, 153-177

Abstract: Abstract We examine how persistent firms’ participation is in R&D subsidy and tax incentive programs, and whether persistence is driven by individual heterogeneity—observed and unobserved—or by state dependence. Using a panel of Spanish manufacturing firms over the period 2001–2008, we estimate a set of dynamic models of program participation. True state dependence of participation in each program is found to be significant, while unobserved heterogeneity accounts for about 41 and 29 % of observed persistence in subsidy and tax credit programs, respectively. Both tend to reach mostly stable R&D performers. We also identify significant differences across programs. Highly productive firms within a given industry are more likely to obtain subsidies; the use of tax credits, in contrast, is unrelated to a firm’s productivity. Our results suggest that R&D tax incentives and R&D subsidies are not substitutes and that any unintended misallocation of support is likely to persist.

Keywords: R&D; Innovation policy; Tax incentives; Subsidies; Persistence; Additionality; Dynamic probit; H25; L60; O31; O38; L26 (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1007/s11187-016-9770-5

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