Subsidising Innovation over the Business Cycle

62 Pages Posted: 16 Jul 2020

See all articles by Isabel Busom

Isabel Busom

Universitat Autonoma de Barcelona

Jorge Velez-Ospina

University of Sussex - Science Policy Research Unit (SPRU)

Multiple version iconThere are 2 versions of this paper

Date Written: June 6, 2020


We investigate whether the impact of direct support for business investment in R&D and innovation varies over the business cycle. We study whether firms that obtain public support in a recession differ from firms that obtain it during expansions; whether the impact of support is smaller in recessions than in expansions, and whether effects vary with the treatment pattern. Using firm-level data from Spain during the period 2005 to 2014, we combine propensity score matching and difference-in-differences methods to estimate firms’ response. We find that (i) while the impact of support on monetary investment in innovation is pro-cyclical, it is counter-cyclical in terms of the employee-time allocation to innovation activities; (ii) the additionality of a one-year treatment is smaller than that of a longer treatment. Direct public support may have thus prevented a decline of the firms’ knowledge capital during the recession.

Keywords: R&D subsidies, policy evaluation, business cycle, additionality

JEL Classification: O25, O38, C14, C21, D22, L29, L53, H50

Suggested Citation

Busom, Isabel and Velez-Ospina, Jorge A., Subsidising Innovation over the Business Cycle (June 6, 2020). SPRU, SWPS Working Paper Series (SWPS), 2020-09: 1-56. ISSN 2057-6668, Available at SSRN: or

Isabel Busom (Contact Author)

Universitat Autonoma de Barcelona ( email )

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

Jorge A. Velez-Ospina

University of Sussex - Science Policy Research Unit (SPRU) ( email )

Brighton, BN1 9SL
United Kingdom

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