The Impact of R&D Subsidies During the Crisis

Abstract

This study investigates the impact of public R&D subsidies on R&D investment of small and mediumsized enterprises (SMEs) in Germany during the most recent economic crisis. Our analysis is based on firm-level data of the Mannheim Innovation Panel (MIP) covering the period 2006-2010. While we find an overall positive effect of R&D subsidies on SMEs' R&D investment behavior, there is evidence for a crowding out effect for the crisis year 2009. In 2010, when the German economy started to recover, the subsidy effect is smaller than in the pre-crisis years, but positive and significant. Additional tests indicate that the temporary crowding out effect was caused by reluctant innovation investment behavior of the subsidy recipients rather than by Germany's countercyclical innovation policy during the crisis.

Innovation, creative destruction and structural change: firm-level evidence from European countries

“…Broad horizontal funding schemes such as tax credits for R&D and innovation are an instrument targeted to lower the threshold for non-innovative firms. However, as Hud and Hussinger (2015) show, public subsidies could not prevent firms from shifting funds from R&D to non-R&D areas in a recession.…”

External Financing Constraints and Firm's Innovative Activities During the Financial Crisis

“…In addition, other studies like Brautzsch et al (2015) and Hud and Hussinger (2015) underlined the importance of public subsidies for innovative firms in an economic downturn. Consequently, if other sources of financing are scarce, policy makers should aim at programs to promote innovation activity during economic downturns.…”

Subsidized and Non-subsidized R&D Projects: Do They Differ?

“…if subsidized firms spend more on R&D after subtracting the amount of the received subsidy. Czarnitzki and Hussinger (2017), Hud and Hussinger (2015) and Aschhoff (2009) find on average additionality of public R&D subsidies. However, one should keep in mind that input additionality is not a necessary condition for a welfare-improving R&D subsidy.…”

“…they investigate if subsidized firms spend more on R&D than in the counterfactual situation. The majority of studies concludes that subsidized firms spend more on R&D than in the counterfactual situation when not receiving a subsidy (for an overview see the surveys of Zúñiga-Vicente et al 2014, Klette et al 2000or David et al 2000; and for studies on Germany see Czarnitzki and Fier 2002, Almus and Czarnitzki 2003, Czarnitzki and Licht 2006, Aerts and Schmidt 2006, Czarnitzki et al 2007, Hussinger 2008, Aschhoff 2009, Czarnitzki and Lopes-Bento 2014, Hud and Hussinger 2015, Czarnitzki and Hussinger 2017). …”