Template-type: ReDIF-Paper 1.0
Author-Name: Busom, Isabel
Author-Email: Isabel.Busom@uab.es 
Author-Workplace-Name: Universitat Autonoma de Barcelona
Author-Name: Corchuelo, Beatriz
Author-Email: bcorchue@unex.es
Author-Workplace-Name: Universidad de Extremadura
Author-Name: Martinez Ros, Ester
Author-Email: martinez@merit.unu.edu
Author-Workplace-Name: UNU-MERIT/MGSoG, and Universidad Carlos III de Madrid
Title: Tax incentives or subsidies for R&D?
Abstract: This paper studies whether firms' use of R&D subsidies and R&D tax 
	 incentives are correlated to two sources of underinvestment in R&D, 
	 financing constraints and appropriability. We find that financially 
	 constrained SMEs are less likely to use R&D tax credits and more likely 
	 to obtain subsidies. SMEs using legal methods to protect their 
	 intellectual property are more likely to use tax incentives. Results are 
	 ambiguous for large firms. For both having previous experience in R&D 
	 increases the likelihood of using tax incentives, while it reduces the 
	 likelihood of using exclusively subsidies, suggesting that the latter 
	 induce entry into R&D. Results imply that direct funding and tax credits 
	 do not have the same ability to address each source of R&D 
	 underinvestment, and that on average subsidies may be better suited than 
	 tax credits at least for SMEs. From a policy perspective these tools may 
	 be complements rather than substitutes 
Classification-JEL: H25, L60, O38, O31
Keywords: Research and Development, R&D, tax incentives, subsidies, policy mix
Series: UNU-MERIT Working Papers
Creation-Date: 2012
Number: 056
File-URL: http://www.merit.unu.edu/publications/wppdf/2012/wp2012-056.pdf
File-Format: application/pdf
File-Size: 275 Kb
Handle: RePEc:unm:unumer:2012056