Isabel Busom i Piquer, Beatriz Corchuelo Martínez-Azúa, Ester Martínez Ros
In this paper we investigate the dynamic interaction between R&D tax credits and R&D subsidies when both tools are available to firms, as is the case in most OECD countries.
Using a sample of manufacturing firms in Spain, we find that (i) controlling for firms’ observed attributes and unobserved heterogeneity, there is stronger persistence in the use of tax incentives than in the use of subsidies; (ii) firms are less likely to switch between each of these tools but if they use one at t they are likely to use both the next period; (iii) non-R&D performers are more likely to either use only subsidies or both instruments. Altogether these results suggest that tax credits and subsidies serve different types of firms and policy goals; in particular subsidies seem to be an appropriate tool to get more firms to perform R&D, while tax credits would not be suited to that end. Tax credits are more appealing for large firms already engaged in R&D, who then keep using them irrespective of most observed attributes. The budgetary cost of each policy will differ over time, as possibly will social benefits
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