Welfare Effects of R&D Support Policies
69 Pages Posted: 18 Oct 2017 Last revised: 21 Jan 2022
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Welfare Effects of R&D Support Policies
Welfare Effects of R&D Support Policies
Date Written: October 16, 2017
Abstract
We conduct a welfare analysis of R&D subsidies and tax credits using a model of innovation policy in corporating externalities, limited R&D participation and financial market imperfections. We estimate the model using R&D project level data from Finland. The optimal R&D tax credit rate (0.24) is lower than the average R&D subsidy rate (0.36). The intensive, not the extensive margin of R&D is important for policy. Tax credits and subsidies increase R&D investments and spillovers compared to laissez-faire but to levels below the first best. R&D support policies don't improve welfare.
Keywords: R&D subsidies, R&D tax credits, extensive and intensive margin, welfare, counterfactual, economic growth
JEL Classification: O38, O31, L53, C31
Suggested Citation: Suggested Citation