Are Incentives for R&D Effective? Evidence from a Regression Discontinuity Approach

This paper contributes to the literature on the effectiveness of R&D incentives by evaluating a unique investment subsidy program implemented in northern Italy. Firms were invited to submit proposals for new projects and only those that scored above a threshold received the subsidy. Over 1,200 firms submitted proposals, with winners receiving an average subsidy of about 170,000 Euros. We use a sharp regression discontinuity design to compare investment spending of subsidized firms just above the cutoff score with spending by firms just below the cutoff. For the sample as a whole we find no significant increase in investment as a result of the program. This overall effect, however, masks substantial heterogeneity in the impact of the program. On average, we estimate that small enterprises increased their investments by about the amount of the subsidy they received from the program, whereas for larger firms the subsidies appear to have had no additional effect.