The Quest for More Efficient R&D Subsidies

We study the dynamic effects of research and development (R&D) subsidies on private R&D spending in Slovenia and examine the changes in corporate R&D spending behavior due to R&D subsidies by applying propensity score matching methodology. Taking the difference-in-differences approach, we evaluate how much the supported firm would have spent on R&D if it had not received the subsidy. The results confirm the complementary effect of public subsidies on private R&D spending and prove that R&D subsidies are an influential variable for the increase in private R&D spending. The results also point to three sources of subsidized firms' heterogeneity that have significant effects on the scope of R&D subsidies: (1) the larger the previous private R&D spending of firms, the smaller the increase in current R&D spending of subsidized firms; (2) the larger the sales, the higher the increase in private R&D spending of subsidized firms; and (3) the effect of R&D subsidies decreases with persistency of subsidizing. Firms that had received subsidies more than twice previously increased their R&D expenditures more slowly than nonsubsidized and less frequently subsidized firms.