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Subsidizing Innovation Over the Business Cycle

Jorge Andrés Vélez-Ospina () and Isabel Busom ()
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Jorge Andrés Vélez-Ospina: Departament d'Empresa, Universitat Autonoma de Barcelona

Authors registered in the RePEc Author Service: Jorge Andres Velez-Ospina

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

Abstract: We investigate whether the impact of direct support for business investment in R&D and innovation varies over the business cycle. We address several questions: whether firms that obtain public support in a recession differ from firms that obtain it during expansions; whether the impact of support is smaller in recessions than in expansions, and whether effects vary with the treatment pattern. Using firm-level data from Spain during the period 2005 to 2014, we combine propensity score matching and difference-in-differences methods to estimate firms’ response to direct support in different phases of the cycle. Two findings stand out. First, while the impact of support on monetary investment in innovation is pro-cyclical, it is countercyclical in terms of the employee-time allocation to innovation activities. Second, the additionality of a one-year treatment is smaller than that of longer treatments, or repeate program participation. Firms receiving public support during the recession have assigned more employee time to innovation activities than a matched control group, preventing a decline of knowledge capital during the big recession.

JEL-codes: O25 O38 C14 C21 D22 L29 L53 H50 (search for similar items in EconPapers)
Pages: 70 pages
Date: 2020-03
New Economics Papers: this item is included in nep-bec, nep-eur, nep-ino, nep-sbm and nep-tid
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