Page 7 - IDEA Studie 07 2023 TACR

ARE SUBSIDIES TO BUSINESS R&D EFFECTIVE? REGRESSION
DISCONTINUITY EVIDENCE FROM THE TA CR ALFA PROGRAMME IDEA 2023
Introduction
Governments use public funds to subsidise business research and experimental development (R&D), because externalities and information asymmetries that are inherent to the innovation process make private funding of these activities fall short of what is socially desirable (Arrow 1962, Klette et al. 2000, and Hall 2002). Whether governments do this effectively is an empirical question that has already been extensively examined in academic literature (David et al. 2000; Cunningham et al. 2012, Zúñiga-Vicente et al. 2014, Testa et al. 2019).
However, the vast majority of research on this topic relies on empirical approaches, such as propensity score matching, which infer causality based on problematic assumptions and may entail a strong bias. In the meantime, studies that leverage explicit, quasi- experimental variation to estimate the effects of subsidies to business R&D remain surprisingly rare and, importantly, none of them uses data on firms’ R&D activities (see Bronzini and Iachini 2014, Bronzini and Piselli 2016, Howell 2017, Wang et al. 2017, Zhao and Ziedonis 2020 and Santoleri et al. 2022. This is no doubt due to data limitations, yet it could seem that evaluating the effects of R&D subsidies – and testing the underlying assumptions of the RD design – without actual R&D data is like presenting ‘Hamlet’ without the prince.
In addition, no well-identified study to date has examined the longitudinal structure of subsidy effects or distinguished short-term effects from long-term ones. As argued by Cunningham et al. (2012), however, when it comes to evaluating R&D subsidies, the difference between immediate effects during the treatment versus persistent effects that continue after the treatment expires is crucial for making policy conclusions, because this indicates whether the effects are transient and tend to quickly fizzle out, or whether they result in durable changes in whichever characteristics of the recipients are under consideration.
This study brings fresh evidence of the effects of business R&D subsidies in Czechia, and helps to bridge these gaps in the literature by examining additionality effects of the ALFA programme administered by the Technology Agency of the Czech Republic (TA CR) in years 2011–2018. Exploiting administrative information on the scores assigned to each project proposal by independent evaluators, we apply a regression discontinuity estimator to a longitudinal micro dataset combining information from R&D surveys, patenting data, structural business statistics, business registers, and
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