American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Are Complementary Policies Substitutes? Evidence from R&D Subsidies in the United Kingdom
American Economic Journal: Economic Policy
(pp. 92–126)
Abstract
This paper studies whether grants and tax incentives for private R&D are complements or substitutes. I use multiple quasi-experimental research designs to examine firms in the United Kingdom and find that increasing tax credit generosity substantially enhances the effect of grant funding on R&D for small firms, suggesting that the instruments are complements. Financial constraints are likely at play. The effects are strongest for firms that appear constrained, and the combination of policies increases R&D "entry." Furthermore, I find that the instruments are substitutes for larger firms, which are usually less constrained. Some alternative explanations can be ruled out.Citation
Pless, Jacquelyn. 2026. "Are Complementary Policies Substitutes? Evidence from R&D Subsidies in the United Kingdom." American Economic Journal: Economic Policy 18 (1): 92–126. DOI: 10.1257/pol.20220356Additional Materials
JEL Classification
- D22 Firm Behavior: Empirical Analysis
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- H81 Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
- L25 Firm Performance: Size, Diversification, and Scope
- O31 Innovation and Invention: Processes and Incentives
- O38 Technological Change: Government Policy