Title: Corporate returns to subsidised R&D projects: direct grants vs. tax credit financing

Authors: Jarle Møen

Addresses: Department of Business and Management Science, NHH Norwegian School of Economics, Helleveien 30, N-5045 Bergen, Norway

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 subsidised 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.

DOI: 10.1504/IJTM.2019.096550

International Journal of Technology Management, 2019 Vol.79 No.1, pp.84 - 101

Received: 06 Jul 2017
Accepted: 23 May 2018
Published online: 05 Dec 2018 *

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