The Bang for the Buck: Aggregate Impact of Firm-Level R&D Incentives

Title: The Bang for the Buck: Aggregate Impact of Firm-Level R&D Incentives, joint work with Petr Sedláček.

Abstract: Firm-level research and development (R&D) incentives, such as subsidies and tax credits, are popular tools aimed at raising aggregate  growth. While these policies are ubiquitous in practice, the evidence on their aggregate efficacy is scarce and we lack theory guiding their implementation in the presence of realistic firm heterogeneity. To fill this gap, we propose an empirical framework quantifying the aggregate impact of such firm-level R&D incentives. Our methodology – grounded in modern  endogenous growth theory – is able to accommodate vast firm  heterogeneity and can be applied with commonly available data and  without solving a full structural model. Employing U.S. firm-level data, our estimates suggest that large firms are the strongest contributors  to  policy-induced increases in aggregate growth. However, subsidizing  young, fast-growing firms (gazelles) can deliver the same bang for less  than half the cost.