Dipping in the Policy Mix: Do R&D Subsidies Foster Behavioral Additionality Effects of R&D Tax Credits?

33 Pages Posted: 26 Mar 2014

See all articles by Daniel Neicu

Daniel Neicu

KU Leuven - Department of Managerial Economics, Strategy, and Innovation

Peter Teirlinck

KU Leuven

Stijn Kelchtermans

KU Leuven - Department of Management, Strategy & Innovation; KU Leuven

Date Written: March 2014

Abstract

We analyze behavioral additionality effects related to wage-based R&D tax credits and their dependence on the joint use of R&D subsidies. Using a matching approach combined with multivariate probit analyses on survey data of Belgian firms in 2006-2010, we find that tax credits cause firms not to 'do more of the same' (scale) nor 'do the same thing faster' (speed) but rather induce them to make more resolute changes to their R&D approach. In particular, firms are found to initiate additional R&D projects and tip the R&D-balance more towards research relative to development. The latter effect indicates that tax credits nudge firms’ behavior towards those activities characterized by the most severe market failures. Furthermore, the behavioral additionality effects are found to increase with the relative importance of the tax credit for the firm. Finally, the effects of tax credits are positively moderated by R&D subsidies i.e. we find that a policy mix combining tax credits and subsidies is more effective than using tax credits only.

Keywords: Behavioral additionality, R&D tax credits, R&D subsidies, R&D policy mix

JEL Classification: D01, D03, D04, D78

Suggested Citation

Neicu, Daniel and Teirlinck, Peter and Kelchtermans, Stijn, Dipping in the Policy Mix: Do R&D Subsidies Foster Behavioral Additionality Effects of R&D Tax Credits? (March 2014). Available at SSRN: https://ssrn.com/abstract=2414356 or http://dx.doi.org/10.2139/ssrn.2414356

Daniel Neicu (Contact Author)

KU Leuven - Department of Managerial Economics, Strategy, and Innovation ( email )

Naamsestraat 69 bus 3500
Leuven, 3000
Belgium

Peter Teirlinck

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Stijn Kelchtermans

KU Leuven - Department of Management, Strategy & Innovation ( email )

Warmoesberg 26
Brussels, 1000
Belgium

HOME PAGE: http://https://feb.kuleuven.be/Stijn.Kelchtermans/

KU Leuven ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

HOME PAGE: http://feb.kuleuven.be/eng/fetew/medewerker/userpage.aspx?PID=759

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