Work Package 3 – Subsidies and Tax Credits

By ,

Participants: KU Leuven, UNIMAAS-Merit, UCM

There is very little if any research on how the effectiveness of innovation policy has changed during the last decade, how different tools worked or would have worked during and after these changes, and how the same tools of innovation policy work in different countries. To address these questions, we propose a project with four defining characteristics: First, we unify our research around a common approach which we elaborate in annex. A key feature of our approach is that it combines economic theory and advanced econometrics into a so-called structural model that allows us to conduct counterfactual policy analyses. Second, we have already secured access to detailed high quality data on R&D subsidies from several Member States (Belgium/Flanders, Finland, France, Spain; we may be able to add data from Estonia, Germany, the Netherlands and the UK), covering an extended time period for each of the countries. Third, we have assembled a team that includes researchers who among themselves have been responsible for a large part of European economic research on R&D tax credits and R&D subsidies. Fourth, both through institutional arrangements of our proposal, as well as through the participating researchers’ proven willingness to engage with policy makers, we can promise not only academically ambitious research, but also a well worked-out dissemination plan for them. As part of the dissemination plan, our project also provides innovation policy practitioners with practical tools: An activation score tool, and a scoring tool. The first describes how likely a given firm is to apply for government support.

It can be used by a government agency to study which firms do not apply (and why); the second generates information on what the support for a given type of firm and R&D project would on average be, meaning that the agency decision makers would then have to justify a level of support that is below or above average.

To summarize, our objectives are to provide:

  1. the activation and scoring tools and a comparison of both these tools, firm’s application behaviour and agencies decision rules across countries;
  2. an internationally comparable results on how the R&D support system works, and what expected benefits R&D investments in different countries yield;
  3. an internationally comparable exercise in calculating optimal R&D tax credits and/or comparing the efficacy of the existing R&D support policies
  4. to provide inputs in terms of key parameters to the macro-modelling exercise.