Are Complementary Policies Substitutes? Evidence from R&D Subsidies in the UK

59 Pages Posted: 31 May 2019 Last revised: 23 Oct 2022

See all articles by Jacquelyn Pless

Jacquelyn Pless

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: June 1, 2022

Abstract

Governments often subsidize private R&D using both grants and tax incentives. This paper studies whether they are complements or substitutes. I take a difference-in-discontinuities approach to examine small firms in the United Kingdom and find that increasing tax credit generosity enhances the effect of grant funding on R&D, suggesting that they are complements. Financing constraints are likely at play. The effects are most substantial for firms that appear constrained, and by implementing another quasi-experimental research design, I find that the instruments are substitutes for larger firms, which are usually less constrained. Some alternative explanations can be ruled out.

Keywords: R&D, innovation, policy interactions, difference-in-discontinuities

JEL Classification: D22, H0, H25, L53, O31, O32, O38

Suggested Citation

Pless, Jacquelyn, Are Complementary Policies Substitutes? Evidence from R&D Subsidies in the UK (June 1, 2022). Available at SSRN: https://ssrn.com/abstract=3379256 or http://dx.doi.org/10.2139/ssrn.3379256

Jacquelyn Pless (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
Cambridge, MA 02142
United States

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