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Tax incentives or subsidies for R&D?

Isabel Busom (), Beatriz Corchuelo Martínez-Azúa () and Ester Martinez Ros ()
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Ester Martinez Ros: UNU-MERIT/MGSoG, and Universidad Carlos III de Madrid

Authors registered in the RePEc Author Service: Ester Martínez-Ros ()

No 2012-056, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: This paper studies whether firms' use of R&D subsidies and R&D tax incentives are 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: Research and Development; R&D; tax incentives; subsidies; policy mix (search for similar items in EconPapers)
JEL-codes: H25 L60 O38 O31 (search for similar items in EconPapers)
Date: 2012
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