Abstract
We compare two common government R&D support programs, R&D tax credits and direct R&D grants. To study their effectiveness and the extent to which their design matters, we analyze these programs within a dynamic equilibrium model of imperfectly competitive industries. Adopting comprehensive welfare measures that take into account government, producer and consumer surpluses, we find that both schemes exhibit positive social returns. Mid-range R&D-intensive sectors exhibit higher social returns than either high or low R&D-intensive sectors. Both incentive schemes generate positive measures of R&D input additionality of magnitudes consistent with empirical R&D research. However, R&D grants that require firms to allocate subsidy funds to R&D spur less R&D than a more flexible R&D tax credit. Subsidy schemes can even induce competing firms to over-spend on R&D, generating negative producer surplus and possibly negative social returns.
Original language | English |
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Pages (from-to) | 682-709 |
Number of pages | 28 |
Journal | Economics of Innovation and New Technology |
Volume | 24 |
Issue number | 7 |
DOIs | |
State | Published - 3 Oct 2015 |
Bibliographical note
Publisher Copyright:© 2014 Taylor & Francis.
Keywords
- R&D additionality
- R&D price elasticity
- R&D subsidies
- competition
- process and product R&D
- social welfare
- tax credits
ASJC Scopus subject areas
- General Economics, Econometrics and Finance
- Management of Technology and Innovation