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

This paper evaluates a unique R&D subsidy program implemented in northern Italy. Firms were invited to submit proposals for new projects and only those which scored above a certain threshold received the subsidy. We use a sharp regression discontinuity design to compare the investment spending of subsidized firms with that of unsubsidized firms. For the sample as a whole we find no significant increase in investment. This overall effect, however, masks substantial heterogeneity in the program's impact. We estimate that small enterprises increased their investments-by approximately the amount of the subsidy they received-whereas larger firms did not.