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Barriers to Innovation and Subsidy Effectiveness

Xulia González (), Jordi Jaumandreu () and Consuelo Pazó ()

RAND Journal of Economics, 2005, vol. 36, issue 4, 930-949

Abstract: We explore the effects of subsidies by means of a model of firmsï¿• decisions about performing R&D when some government support can be expected. We estimate it with data on about 2,000 performing and nonperforming Spanish manufacturing firms. We compute the subsidies required to induce R&D spending,we detect the firms that would cease to perform R&D without subsidies, and assess the change in the privately financed effort. Results suggest that subsidies stimulate R&D and some firms would stop performing in their absence,b ut most actual subsidies go to firms that would have performed R&D otherwise. We find no crowding out of private funds.

Date: 2005
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Handle: RePEc:rje:randje:v:36:y:2005:4:p:930-949