The effect of R&D subsidies and tax incentives on employment: an evaluation for small firms in France

Abstract

Between 2003 and2010, the amount of tax incentives and subsidies granted by French public authorities to finance the R&D activities of SMEs increased fourfold. This very sharp increase is due to the research tax credit (RTC) reforms, particularly in 2008, the creation in 2004 of a young innovative business status and an increase in subsidies over the period. Based on exhaustive employment data for France, this paper presents the first ever evaluation of the effect of the increase in these aids on small firms. Using a method that combines matching and a labour demand model, we show that the effect of public support on R&D employment is positive and increased during the period 2004-2010. Nonetheless, the increase in aid, particularly subsequent to the wide ranging reform of the RTC in 2008, was accompanied by a significant crowding-out effect: according to our estimates, only between 18 and 34% of the supplementary aid obtained by businesses between 2008 and 2010 was used to finance new jobs for highly qualified workers.

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