Are Incentives for R&D Effective? Evidence from a Regression Discontinuity Approach

Abstract

This paper evaluates a unique R&D subsidy program implemented in northern Italy. Firms were invited to submit proposals for new projects and only those which scored above a certain threshold received the subsidy. We use a sharp regression discontinuity design to compare the investment spending of subsidized firms with that of unsubsidized firms. For the sample as a whole we find no significant increase in investment. This overall effect, however, masks substantial heterogeneity in the program's impact. We estimate that small enterprises increased their investments—by approximately the amount of the subsidy they received—whereas larger firms did not. (JEL G31, G38, L52, O33, O38, R32)