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Tax incentives and direct support for R&D: What do firms use and why?

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

Working Papers from Department of Applied Economics at Universitat Autonoma of Barcelona

Abstract: This paper studies whether firms’ use of R&D subsidies and R&D tax incentives is correlated to two sources of underinvestment in R&D, financing constraints and appropriability. We find that financially constrained SMEs are less likely to use R&D tax credits and more likely to obtain subsidies. SMEs using legal methods to protect their intellectual property are more likely to use tax incentives. Results are ambiguous for large firms. For both having previous experience in R&D increases the likelihood of using tax incentives, while it reduces the likelihood of using exclusively subsidies, suggesting that the latter induce entry into R&D. Results imply that direct funding and tax credits do not have the same ability to address each source of R&D underinvestment, and that on average subsidies may be better suited than tax credits at least for SMEs. From a policy perspective these tools may be complements rather than substitutes.

Keywords: R&D; tax incentives; subsidies; policy mix (search for similar items in EconPapers)
JEL-codes: H25 L60 O31 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2012-12
New Economics Papers: this item is included in nep-acc, nep-ino, nep-ipr, nep-pr~, nep-pbe, nep-pub and nep-sbm
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Working Paper: Tax incentives and direct support for R&D: what do firms use and why? (2011) Downloads
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