R&D grant and tax credit support for foreign-owned subsidiaries: Does it pay off?

Arbeitspapier

Foreign-owned subsidiaries make significant contributions to national Research and Development (R&D) in many host countries. Policymakers often support subsidiaries through R&D grants and R&D tax credits. A key objective of this funding is to leverage R&D-driven firm performance benefits for the host economy. However, the subsidiary's parent firm may decide not to exploit the results from publicly-funded R&D projects in the host country. Therefore, supporting subsidiaries' R&D presents a risk that significant amounts of public funding may translate into little, or no payoffs for the host economy. Our study provides the first evaluation of 1) whether public R&D funding stimulates additional R&D investment in subsidiaries, 2) whether policy-induced R&D drives subsidiary performance, and 3) the differential effects of R&D grants and R&D tax credits. Drawing on a unique panel dataset for Ireland (2007-2016), we find that both R&D supports drive subsidiary R&D, resulting in substantial host country firm performance benefits.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 22-003

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Empirical Analysis ; Industrial Policy ; Multinational Firms; International Business ; International Investment; Long-term Capital Movements ; Technological Change: Government Policy ; Microeconomic Policy: Formulation, Implementation, and Evaluation ; Business Taxes and Subsidies including sales and value-added (VAT) ; Innovation and Invention: Processes and Incentives
• Subject: Public funding for R&D ; Firm performance ; Firm ownership ; Foreign-owned subsidiaries ; Multinational enterprise ; R&D tax credit ; R&D grant ; Policy evaluation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lenihan, Helena ; Mulligan, Kevin ; Doran, Justin ; Rammer, Christian ; Ipinnaiye, Olubunmi
• Event: Veröffentlichung
• (who): ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
• (where): Mannheim
• (when): 2022

Further information

• Handle: http://hdl.handle.net/10419/250387
• Last update: 10.03.2025, 11:44 AM CET