Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/307802 
Year of Publication: 
2024
Series/Report no.: 
Helsinki GSE Discussion Papers No. 21
Publisher: 
Helsinki Graduate School of Economics, Helsinki
Abstract: 
We conduct a welfare analysis of R&D subsidies and tax credits using a model of innovation policy incorporating externalities, limited R&D participation and financial market imperfections. We estimate the model using R&D project level data from Finland. The intensive, not the extensive R&D margin is important. Financial frictions do not matter much. Tax credits and subsidies do not reach first best but increase R&D 30-50% compared to laissez-faire. Once the subsidy application costs are accounted for, tax credits increase welfare by 1% and subsidies slightly reduce welfare. In terms of fiscal cost, tax credits are 90% more expensive than R&D subsidies.
Subjects: 
R&D subsidies
R&D tax credits
extensive and intensive margin
financial market imperfections
welfare
counterfactual
economic growth
JEL: 
O30
O38
H25
ISBN: 
978-952-7543-20-7
Document Type: 
Working Paper

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