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

• Autores: Isabel Busom i Piquer, Beatriz Corchuelo Martínez-Azúa, Ester Martínez Ros
• Localización: XIX Encuentro de Economía Pública: Políticas Públicas para la salida de la crisis, 2012, ISBN 978-84-695-1574-7, pág. 71
• Idioma: inglés
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• Resumen

  • Evidence on the effects of public support to private R&D on R&D investments and outputs is a key policy issue that has been widely explored in the empirical literature. The focus of this research has mostly remained on testing for possible crowding out effects. There is virtually no study aiming at understanding how and why these effects may or may not be occurring. In addition, the effects of the two most common tools of public support, direct funding (grants and loans) and tax incentives, have been studied separately.

    Our analysis departs from existing work in that we focus on the determinants of the use by firms of the two mechanisms of support and their potential link to sources of market failures as perceived by firms. We think this is an important step to interpret impact estimates. We use to that end firm-level data from the Spanish Community Innovation Survey (CIS) for the period 2003-5 and 2006-8. We find that firms that face financial constraints, as well as newly created firms, are less likely to use R&D tax credits. SMEs that face this type of constraint are more likely to apply and obtain direct public funding. Regarding appropriability large firms that care about protection are more likely to apply for and obtain direct funding, while SMEs are more likely to use tax incentives. These results suggest that direct funding and tax credits, as currently designed, are not perfect substitutes because firms are heterogeneous. Provided that crowding out effects can be ruled out for both instruments, from a social point of view some combination of both would be preferable to relying on only one.