Dynamics of Firm Participation in R&D Tax Credit and Subsidy Programs

35 Pages Posted: 16 Jul 2015

See all articles by Isabel Busom

Isabel Busom

Universitat Autonoma de Barcelona

Beatriz Corchuelo

University of Extremadura - Department of Economics

Ester Martinez-Ros

Universidad Carlos III de Madrid

Date Written: March 31, 2015

Abstract

We provide comparative evidence on R&D tax credit and subsidy programs by studying whether firms' participation in each program exhibits state dependence and whether cross program interactions exist and are significant. We use a panel of manufacturing Spanish firms, which could use both types of support, to estimate a random effects bivariate dynamic probit model of program participation. We find that true state dependence of participation in R&D subsidy and tax credit programs accounts respectively for about 55% and 60% of observed persistence. In contrast, we do not find evidence of cross program interaction, suggesting that each tool is used by firms with different profiles. Digging on the role of some observable variables, we find that both programs reach on average stable R&D performers, and that they do not foster participation of young firms relative to older ones. We also identify significant differences across programs: while diversified and commercially successful firms are more likely to use tax incentives, those with high productivity are more likely to obtain subsidies. We discuss some policy implications of these findings.

Keywords: R&D, innovation policy, tax incentives, subsidies, persistence, dynamic random effects, bivariate probit

JEL Classification: H25, L26, L60,O31, O38

Suggested Citation

Busom, Isabel and Corchuelo, Beatriz and Martinez-Ros, Ester, Dynamics of Firm Participation in R&D Tax Credit and Subsidy Programs (March 31, 2015). Available at SSRN: https://ssrn.com/abstract=2630945 or http://dx.doi.org/10.2139/ssrn.2630945

Isabel Busom (Contact Author)

Universitat Autonoma de Barcelona ( email )

Departament d'Economia Aplicada
Edifici B - Campus UAB
08193 Bellaterra
Spain
+34 935 81 22 06 (Phone)
+34 935 81 22 92 (Fax)

Beatriz Corchuelo

University of Extremadura - Department of Economics ( email )

Avda. de Elvas s/n
06071 Badajoz
Spain

Ester Martinez-Ros

Universidad Carlos III de Madrid ( email )

C/ Madrid, 126
Getafe, Madrid 28903
Spain

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