Subsidising innovation over the business cycle

Isabel Busom*, Jorge Andrés Vélez-Ospina

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

Abstract

We investigate whether the impact of direct support for business investment in R&D and innovation varies over the business cycle. We study whether firms that obtain public support in a recession differ from firms that obtain it during expansions; whether the impact of support is smaller in recessions than in expansions, and whether effects vary with the treatment pattern. Using firm-level data from Spain during the period 2005 to 2014, we combine propensity score matching and difference-in-differences methods to estimate firms’ response. We find that (i) while the impact of support on monetary investment in innovation is pro-cyclical, it is counter-cyclical in terms of the employee-time allocation to innovation activities; (ii) the additionality of a one-year treatment is smaller than that of a longer treatment. Direct public support may have thus prevented a decline of the firms’ knowledge capital during the recession.

Original languageAmerican English
JournalIndustry and Innovation
DOIs
Publication statusAccepted in press - 2020

Keywords

  • additionality
  • business cycle
  • C14
  • C21
  • D22
  • H50
  • L29
  • L53
  • O25
  • O38
  • policy evaluation
  • R&D subsidies

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