It is well-known that R&D and innovation investments by the private sector suffer from market failure and thus the investment level in the economy is below the social desirable level. It is also a well-known fact that governments of industrialized countries try to correct for such market failure by subsidizing R&D and innovation. It has been discussed for decades whether those policies are subject to crowding out effects. A topic that did not receive a lot of attention in the literature so far, however, is the fact that many different policies may influence a private investor"s decision on R&D and innovation activities simultaneously. So far, scholars have either evaluated one specific policy instrument or otherwise treatment effects have been derived as averages of different policy interventions.In this paper, we go one step further and explicitly distinguish between national and European policies. In particular, we are interested in measuring the impact of one specific policy, namely direct subsidies for innovation and R&D given that this constitutes the main policy instrument in Germany. More precisely, we analyze the relationship between national funding, European funding and the combination of both on innovation input and output using a sample of German firms.We conduct a multiple treatment effects analysis on the impact that national subsidies compared to, or in combination with, European subsidies have on innovation and R&D intensity. Furthermore, in order to estimate the impact of these policies on innovation performance, we analyze whether subsidies, and the different combinations of the latter, have an impact on innovation sales, on sales with market novelties or on future patents applications. Since filing patents for subsidized R&D is often advised by the funding agency, we further analyze whether the filed patents by subsidized firms get more or less forward citations than patents filed in the counterfactual situation of getting no or other subsidies.Positive effects of those treatments, and the awareness of which combination of policy mix (national, European or both) has the highest impact on innovative activity, is a crucial prerequisite for efficient European and national innovation policies.We find that both EU grants and national grants, as well as the combination of both, lead to higher innovation input in the economy when compared to a situation where these policies would be absent, i.e. the counterfactual where the recipient firms would not be funded. In addition, we find that EU grants compared to national grants have a higher effect on innovation input which can possibly explained by a larger average grant amount. Hence, full crowding out can be rejected for both types of grants.With regards to innovation performance, we find evidence that publicly funded firms do not perform worse when compared to a counterfactual where the recipient firms would have the same innovation budgets without receiving subsidies. Keeping innovation investment constant allows us to indirectly conclude that the gr...

This study investigates the efficacy of public RD support. Compared to most existing studies, we do not stop at substitution effects or general innovation outcome measures, but we are interested in knowing where the policy effect is highest: on innovation close to the market (i.e. incremental innovation) or on innovation that is still far from the market and hence more risky and radical. Using firm level data from the period 1999 to 2011, we find that the policy hits where the market failure is highest, that is, for radical innovation. Taking into account that the Swiss funding agency encourages collaboration, we find no evidence that the impact of the policy is positively effected by various RD collaboration patterns. AbstractThis study investigates the efficacy of public R&D support. Compared to most existing studies, we do not stop at substitution effects or general innovation outcome measures, but we are interested in knowing where the policy effect is highest: on innovation close to the market (i.e. incremental innovation) or on innovation that is still far from the market and hence more risky and radical. Using firm level data from the period 1999 to 2011, we find that the policy hits where the market failure is highest, that is, for radical innovation. Taking into account that the Swiss funding agency encourages collaboration, we find no evidence that the impact of the policy is positively effected by various R&D collaboration patterns.

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-technical summaryIn this paper, we estimate the effect of subsidies granted by the Flemish government (northern region of Belgium) on R&D spending and R&D employment in recipient firms. As econometric treatment effects studies are nowadays standard in the scholarly literature and even in policy practice, we go beyond the typical applications. Usually scholars estimate a treatment effect on the treated, and then conclude whether a subsidy program is subject to full or partial crowding out effects. In this present study, we add a number of further tests that are of interest for policy makers in their daily decision making. The analyses are based on detailed discussions with the representatives of the public agency administering the innovation policy instruments in Flanders, the "IWT Vlaanderen". In particular, the policy makers were interested in the following questions: (i) Does the receipt of subsidies from other sources on top of IWT grants reduce the effect of the local policy program? (ii) Does the treatment effect decline if the same firm is funded repeatedly over time? (iii) Does granting multiple projects to the same recipient firm in the same time period decrease the treatment effect?The paper discusses a number of further robustness tests and also includes a back of the envelope calculation where we extrapolate the sample results to the population of firms. We conclude that neither subsidies from other sources, nor funding the same firm repeatedly over time, nor granting multiple projects in the same time period reduce the treatment effect of an average, subsidized project in terms of additional R&D expenditure and R&D employment.With respect to the macroeconomic effect, we conclude that a total of 3,019 projects (total value € 628 million) granted between 2004 and 2010 has created (or maintained) about 16,800 person-years of R&D employment in the Flemish economy. Das Wichtigste in Kürze (Summary in German)In IntroductionThe impact of subsidies on firms' innovative behaviour has been of interest in economic literature for many years now. In line with this literature, we are interested in knowing what the effect of one specific instrument is on firms' R&D intensity and R&D employment, namely the effect of subsidies for R&D from the Flemish government (northern part of Belgium). We employ econometric treatment effects models for estimating the treatment effect on the treated. As studies like this are nowadays more or less standard in the scholarly lit...