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Are “Complementary Policies” Substitutes? Evidence from R&D Subsidies in the UK
Governments often subsidize private R&D through a mix of interdependent mechanisms, but how these subsidies interact is not well understood. This paper shows that direct subsidies (grants) and indirect subsidies (tax credits) for R&D are complements for small firms but substitutes for larger firms on the intensive margin. Using non-overlapping funding rules and policy changes in the UK, I find that a large increase in tax credit generosity nearly doubles the positive effect that grants have on R&D expenditures for small firms, but it cuts the effect in half for larger firms. The policy interactions also influence the types of innovations that emerge: small firms steer grant funding more towards horizontal innovation efforts with increased tax credit rates, while larger firms substitute funds away from them. I explore the mechanism behind the results and provide suggestive evidence that subsidy complementarity for small firms is consistent with these firms facing financial constraints, whereas for larger firms, tax credits may fund infra-marginal projects.
Date:
13 November 2018, 12:00
Venue:
Manor Road Building, Manor Road OX1 3UQ
Venue Details:
Seminar Room D
Speaker:
Jacquelyn Pless (University of Oxford)
Organising department:
Department of Economics
Part of:
Applied Microeconomics Workshop
Booking required?:
Not required
Audience:
Members of the University only
Editor:
Melis Clark
