By Otto Toivanen,
This paper summarizes the results from theoretical modeling of the R&D subsidy process as well as from microeconometric analysis on how firms apply for R&D subsidies, and how governments grant them, using data from 5 EU countries. The two key lessons for macro-modeling are: First, additionality is not a sufficient statistic on which one could build the micro-input into macro models. Second, an important feature of firm application and government subsidy rate decisions is heterogeneity. This heterogeneity manifests itself across firms/applications, across countries, and to some extent also across time. One source of heterogeneity are differences in institutions across countries and time.