This paper analyses empirically the impacts of public R&D grants on
private R&D investments and on the productivity growth of the
manufacturing firms in a context where fiscal incentives are present.
Using the conditional semiparametric differenceindifferences estimator
on longitudinal data from Quebec we show that firms that use public
grants for R&D in conjunction with tax credits for R&D perform better in
terms of R&D input additionality than firms that use only tax credits
for R&D. We then use a production function to assess the effectiveness
of public R&D grants in the productivity growth of firms. We find that
for each additional dollar of public R&D grant, output increases by
0.134 dollars. We conclude that the additional return of direct
subsidies is positive but lower than the return on the R&D financed by
own funds or R&D tax credits.
Keywords: R&D, Public subsidies, Quebec, Productivity, Difference-in-differences
JEL: H25, O32
UNU-MERIT Working Papers ISSN 1871-9872