Corporate Returns to Subsidized R&D Projects: Direct Grants vs Tax Credit Financing

International Journal of Technology Management, Forthcoming

NHH Dept. of Business and Management Science Discussion Paper No. 2018/9

22 Pages Posted: 8 Jun 2018

See all articles by Jarle Møen

Jarle Møen

Norwegian School of Economics (NHH) - Department of Business and Management Science

Date Written: May 31, 2018

Abstract

According to theory, direct R&D grants should be used for projects with low private returns, high social returns and high risk. R&D tax credits, on the other hand, allow firms to choose projects freely according to their private returns. Building on the standard R&D capital model, I develop a framework for estimating private returns to R&D projects with different types of funding. I apply the framework to estimate the corporate returns to subsidized R&D projects in Norway. Consistent with theory and a high quality grant allocation process, I find that projects funded through direct grants have private returns that are not significantly different from zero and with high variance, while the return to R&D projects financed by tax credits is just slightly below the return to R&D projects financed by own funds. The latter two return estimates are 16 % and 19 % respectively. I find that SMEs and small R&D performers have somewhat higher returns to R&D than larger firms. The overall return estimate across all types of finance is 15 %. This is in line with recent meta-regression results in the international literature.

Keywords: Returns to R&D, R&D capital model, Knowledge capital model, R&D subsidies, R&D grants, R&D tax credit, Innovation Policy, Technology policy, Norway

JEL Classification: H25, O32, O38

Suggested Citation

Moen, Jarle, Corporate Returns to Subsidized R&D Projects: Direct Grants vs Tax Credit Financing (May 31, 2018). International Journal of Technology Management, Forthcoming, NHH Dept. of Business and Management Science Discussion Paper No. 2018/9, Available at SSRN: https://ssrn.com/abstract=3191830 or http://dx.doi.org/10.2139/ssrn.3191830

Jarle Moen (Contact Author)

Norwegian School of Economics (NHH) - Department of Business and Management Science ( email )

Helleveien 30
Bergen, NO-5045
Norway

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
67
Abstract Views
526
Rank
608,061
PlumX Metrics