Value for Money? New Microeconometric Evidence on Public R&D Grants in Flanders

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-technical summaryIn this paper, we estimate the effect of subsidies granted by the Flemish government (northern region of Belgium) on R&D spending and R&D employment in recipient firms. As econometric treatment effects studies are nowadays standard in the scholarly literature and even in policy practice, we go beyond the typical applications. Usually scholars estimate a treatment effect on the treated, and then conclude whether a subsidy program is subject to full or partial crowding out effects. In this present study, we add a number of further tests that are of interest for policy makers in their daily decision making. The analyses are based on detailed discussions with the representatives of the public agency administering the innovation policy instruments in Flanders, the "IWT Vlaanderen". In particular, the policy makers were interested in the following questions: (i) Does the receipt of subsidies from other sources on top of IWT grants reduce the effect of the local policy program? (ii) Does the treatment effect decline if the same firm is funded repeatedly over time? (iii) Does granting multiple projects to the same recipient firm in the same time period decrease the treatment effect?The paper discusses a number of further robustness tests and also includes a back of the envelope calculation where we extrapolate the sample results to the population of firms. We conclude that neither subsidies from other sources, nor funding the same firm repeatedly over time, nor granting multiple projects in the same time period reduce the treatment effect of an average, subsidized project in terms of additional R&D expenditure and R&D employment.With respect to the macroeconomic effect, we conclude that a total of 3,019 projects (total value € 628 million) granted between 2004 and 2010 has created (or maintained) about 16,800 person-years of R&D employment in the Flemish economy. Das Wichtigste in Kürze (Summary in German)In IntroductionThe impact of subsidies on firms' innovative behaviour has been of interest in economic literature for many years now. In line with this literature, we are interested in knowing what the effect of one specific instrument is on firms' R&D intensity and R&D employment, namely the effect of subsidies for R&D from the Flemish government (northern part of Belgium). We employ econometric treatment effects models for estimating the treatment effect on the treated. As studies like this are nowadays more or less standard in the scholarly lit...

Do the effects of R&D tax credits vary across industries? A meta-regression analysis

“…Their effect is to reduce the marginal cost of R&D investments (Hall and Van Reenen, 2000). By contrast, R&D subsidies target specific projects with high social returns and a longer time horizon, and their effect is to raise the marginal rate of return of R&D (David et al, 2000;Czarnitzki and Lopes-Bento, 2013). An advantage of tax incentives vis-a-vis subsidies is that the former are less subject to policy inefficiencies, since they are bottom up and based on agents' decisions, whereas subsidies are more likely to incur in policy failure because they are highly dependent on the information available to the policy makers that manage the R&D programme and the strategic priorities set by this.…”

R&D subsidies and productivity in SMEs

“…2 Many authors have reported that R&D subsidies stimulate private investments (e.g. Almus and Czarnitzki, 2003;Hyytinen and Toivanen, 2005;Czarnitzki, 2006;Görg and Strobl, 2007;Özçelik and Taymaz, 2008;Aerts and Schmidt, 2008;Hussinger, 2008;Meuleman and Maeseneire, 2012;Czarnitzki and Lopes-Bento, 2013), but studies have also found that these funds partly or fully crowd out some private investments (e.g. Wallsten, 2000;Lach, 2002;Busom, 2000;González and Pazó, 2008;Gelabert et al, 2009 Bronzini andIachini, 2014).…”

The impact of R&D subsidies on R&D employment composition

“…Propensity score matching (PSM), as a matching method for the estimation of the average treatment effect on the treated (ATT), has been used extensively in empirical studies of the effects of R&D subsidies (see, among others, Aerts and Schmidt;Almus and Czarnitzki, 2003;Carboni, 2011;Czarnitzki and Licht, 2006;Czarnitzki and Lopes Bento, 2013;Duch et al 2009;Duguet, 2004;González and Pazó, 2008;Herrera and Nieto, 2008).…”

“…The wealth of information provided by the PITEC allows an exhaustive set of variables to be selected and similar controls to be included as those used in previous evaluation studies (see, among others, Aerts and Schmidt, 2008;Almus and Czarnitzki, 2003;Antonelli and Crespi, 2013;Czarnitzki and Lopes-Bento, 2013;Czarnitzki and LopesBento, 2014;González and Pazó, 2008;Hussinger, 2008).…”

“…Taking advantage of the panel data structure, we include a lagged variable to control for persistence in obtaining subsidies, as has been done in other papers that use the same methodology (Czarnitzki and Lopes-Bento, 2013;Duguet, 2004;González and Pazó, 2008). In addition, receiving subsidies from other agencies -regional, national or European -may also have influence on obtaining subsidies from a specific government level.…”