The Effects of Public Subsidies on R&D Employment: Evidence from OECD Countries

Abstract

Existing empirical evidence suggests that public subsidies and fiscal incentives have a positive effect on the amount of private R&D expenditure. However, most studies have failed to address the possibility at least some of this increase may simply reflect the fact that R&D workers are being paid higher wages. Such an omission may imply that past research has over-estimated the effectiveness of R&D tax concessions. In the absence of widely-available R&D deflators, we consider the impact of a range of public subsidies on the number of full-time equivalent workers employed in R&D (i.e., researchers) in the business sector. Our findings strongly support the effectiveness of both direct subsidies and fiscal incentives.

Keywords: Innovation Policy, R&D Tax Credits, R&D Investment

JEL Classification: O38, H25