The effects of public support schemes on small and medium enterprises |
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| Institution: | 1. Institute of Economics, Zagreb, Trg J. F. Kennedy 7, 10000 Zagreb, Croatia;2. Department of Mathematics, University of Zagreb, Bijenicka 30, 10000 Zagreb, Croatia;1. Department of Economics and Management, University of Florence, Italy;2. Regional Institute for Economic Planning of Tuscany, IRPET, Italy;3. School of Business, Economics and Informatics, Birkbeck, University of London, United Kingdom;4. Department of Economics, University of Modena and Reggio Emilia, Italy;5. Centre for the Analysis of Public Policies – CAPP, University of Modena and Reggio Emilia, Italy;1. Athens University of Economics and Business, Management Science and Technology Department, 76, Patission Street, GR10434 Athens, Greece;2. Department of Economics, The George Washington University, 1957 E Street, N.W., Suite 403, Washington, DC 20052, United States;3. Center for International Science and Technology Policy, The George Washington University, 1957 E Street, N.W., Suite 403, Washington, DC 20052, United States;1. Université Libre de Bruxelles, iCite, Belgium;2. Unidade de Monitorização de Políticas Públicas (UMPP), Universidade de Évora, Portugal;1. School of Management, University of Chinese Academy of Sciences, Beijing, China;2. School of Management, Fudan University, Shanghai, China;3. Department of Systems Engineering and Engineering Management, City University of Hong Kong, Tat Chee Avenue, Kowloon, Hong Kong;1. Düsseldorf Institute for Competition Economics (DICE), Germany;2. K.U.Leuven, Department of Managerial Economics, Strategy and Innovation, Leuven, Belgium;3. Centre for European Economic Research (ZEW), Mannheim, Germany;4. University of Zurich, Zurich, Switzerland |
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| Abstract: | In this paper we will investigate the effects of direct grants and tax incentives on recipient small and medium enterprises (SMEs). Direct grants and tax incentives are two different public instruments used to correct market failure and facilitate innovation through lowering the cost of R&D. Although large and small firms innovate in different ways, so far limited empirical evidence has been reported with respect to the effectiveness of public R&D instruments for SMEs. Our data suggests that direct subsidies used alone or with tax incentives strengthen the R&D orientation of the SME as well as some aspects of innovation output and absorptive capacity. Although the effects of policy measures are significant when comparison is made to firms that did not use any of the two instruments, not much difference is found when users of direct grants are compared to those who used both the grants and the tax incentives. This result indicates the existence of limitations in the use of tax incentives by SMEs, and thus suggests that subsidies may be the primary instrument in SMEs. |
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| Keywords: | Tax incentive Subsidy Direct grant R&D SME Innovation Absorptive capacity Developing country |
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