Skip to main content

Assessment of the public tools used to promote R&D investment in Spanish SMEs


In this paper, we identify the potential determinants of firm R&D to understand the effectiveness of public policies. Our results suggest a considerably low impact of tax credits and public grants on the R&D investment of the Spanish manufacturing firms. Tax credits are mainly considered by large firms that use them as a reduction in the tax burden in the corporate tax, while SMEs use public grants to alleviate financial constraints. This evidence leads to discuss alternatives to the current design of the public policies analyzed.

This is a preview of subscription content, access via your institution.


  1. 1.

    Spain has failed to improve its relative position and remains in the group of the moderate innovators according to the EU Innovation Scoreboard (EU 2012). EU Scoreboard data show investment in R&D by the top 1,000 EU companies and places Spain 19th of 27 EU countries in terms of innovation performance.

  2. 2.

    Although, academic and policy makers have made considerable effort in analyzing the input additional effects of public instruments, there is also a growing interest in the study of output additionality (e.g., increase in growth/employment/number of patents) and on behavioral additionality. This is the case when the public tools may induce changes in the firm behavior, or may change the behavior of other firms or institutions toward that firm (e.g., by receiving a type of public support, the government may certify firms and confer a halo or certification effect to private investors and/or banks (see Meuleman and De Maeseneire 2012).

  3. 3.

    Corchuelo and Martínez-Ros (2008) show that tax incentives are little known by Spanish firms and may be used only randomly by SMEs.

  4. 4.

    This latter figure is, for example, slightly higher than the same figure in Germany and lower than the one in Finland where the proportion of R&D investment in terms of GDP is greater in both cases than in Spain.

  5. 5.

    In this group, 46 firms were formed in 1995 or later. In other words, only 6.5 % of the firms that invest less or equal than 10 years are aged fewer than 10. In fact, the average age of firms investing in R & D over 10 years is 37.18. The average age of firms investing < 10 years is 30.19.

  6. 6.

    A value > 100 % can be obtained in those cases where the entire public grant is received in a year although the duration of the investment project is greater than a year.

  7. 7.

    Three alternative estimation techniques are applied to the panel: pooled OLS, IV two-step OLS and two-step GMM first differences. These results are available from the authors upon request.

  8. 8.

    We use the Hausman F test to contrast endogeneity in average productivity, interest rate, external debt, tax credits and public grants, with statistic values (an p values in brackets) of F(1,546) = 1,391.81 [0.00], F(1,487) = 0.67 [0.41], F(1,500) = 1.59 [0.21], F(1,549) = 0.80 [0.37] and F(1,417) = 0.24 [0.63], respectively. The null hypothesis is that these variables are exogenous. This hypothesis can be rejected at the 5 % level in case of average productivity, which implies that average productivity is endogenous.

  9. 9.

    Stock and Yogo (2005) classify a group of instruments as weak, or “performing poorly”, if the bias of IV estimator relative to the bias of the OLS, or alternatively the statistic, could exceed several relative thresholds (in this study we use 10 and 15 % maximal IV size). The instrumental variable estimator relative bias is < 10/15 %.

  10. 10.

    Under the null hypothesis that the instrumental variables are valid, the Hansen test is distributed as a chi square with degrees of freedom equal to the number of over identifying restrictions.

  11. 11.

    From expression (13), we exclude marginal productivity taking into account the possible existence of multicollinearity. Otherwise, the results with this variable were not different from the results presented in Tables 3 and 4. These results are available from the authors upon request.

  12. 12.

    But our evidence differs from Berubé and Mohen (2009) in their analysis, focused on innovation output measures, conclude that firms using tax credits and public grants are more effective than firms using only tax credits, but firm size is not a relevant variable for the analysis.

  13. 13.

    The repealing of this deduction would increase corporate tax revenues in 2013 by 1.5 % (about 280 million Euros).

  14. 14.

    This is a reasonable assumption taken into account the estimations by Meghir et al. (1996), where highly innovative firms face essentially zero adjustment costs.

  15. 15.

    The results for the endogeneity test for average productivity, interest rate, external debt, tax credits and public grants are, respectively, the following: (p values in brackets) F(1,545) = 1,369.92 [0.00], F(1,486) = 0.07 [0.79], F(1,499) = 1.64 [0.20], F(1,548) = 0.54 [0.46], F(1,416) = 0.58 [0.45].

  16. 16.

    The results for the endogeneity test for average productivity, interest rate, external debt, tax credits and public grants are, respectively, the following: (p values in brackets) F(1,537) = 1,350.10 [0.00], F(1,478) = 0.02 [0.88], F(1,491) = 1.24 [0.27], F(1,540) = 0.28 [0.59], F(1,408) = 0.72 [0.39].


  1. Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68, 29–51.

    Article  Google Scholar 

  2. Baghana, R., & Mohnen, P. (2009). Effectiveness of R&D tax incentives in Small and large enterprises in Quebec. Small Business Economics, 33(1), 91–107.

    Article  Google Scholar 

  3. Baltagi, B. H. (2008). Econometric analysis of panel data (4th edition ed.). Chichester: Wiley.

    Google Scholar 

  4. Baum, C. F., Schaffer, M. E., & Stillman, S. (2003). Instrumental Variables and GMM: Estimation and Testing. The Stata Journal, 3(1), 1–31.

    Google Scholar 

  5. Baum, C. F., Schaffer, M. E., & Stillman, S. (2007). Enhanced routines for instrumental variables/generalized method of moments estimation and testing. The Stata Journal, 7, 465–506.

    Google Scholar 

  6. Beneito, P. (2001). R&D productivity and spillovers at the firm level: evidence from Spanish panel data. Investigaciones Económicas, 25(2), 289–313.

    Google Scholar 

  7. Berubé, C., & Mohen, P. (2009). Are firms that received R&D subsidies more innovative? Canadian Journal of Economics, 42(1), 206–225.

    Article  Google Scholar 

  8. Bond, S., Elston, J. A., Mairesse, J., & Mulkay, B. (2003). Financial factors and investment in Belgium, France, Germany, and the United Kingdom: A comparison using company panel data. Review of Economics and Statistics, 85(1), 153–165.

    Article  Google Scholar 

  9. Busom, I. (2000). An empirical evaluation of the effects of R&D subsidies. Economics of Innovation and New Technology, 9(2), 111–145.

    Article  Google Scholar 

  10. Busom, I., Corchuelo, B. & Martinez, E. (2011). Tax incentives and direct support for R&D: what do firms use and why?, Working Paper 11-03, Universidad Carlos III de Madrid.

  11. Busom, I., Corchuelo, B. & Martinez, E. (2012). Tax incentives or subsidies for R&D? Working Paper Series UNU-MERIT, 2012-056.

  12. Carboni, O. (2011). R&D subsidies and private R&D expenditure: Evidence data from Italian manufacturing data. International Review of Applied Economics, 25(4), 419–439.

    Article  Google Scholar 

  13. Cerulli, G. (2010). Modelling and measuring the effect of public subsidies on business R&D: A critical review of the economic literature. Economic Record, 34, 421–449.

    Article  Google Scholar 

  14. Comin, D. (2004). R&D: a small contribution to productivity growth, NBER Working Paper 10625.

  15. Corchuelo, B. (2006). Incentivos fiscales en I + D y decisiones de innovación. Revista de Economía Aplicada, XIV(40), 5–34.

    Google Scholar 

  16. Corchuelo, B., & Martínez-Ros, E. (2008). Aplicación de los incentivos fiscales a la inversión en I + D en las empresas españolas. Hacienda Pública Española, 187–4, 9–39.

    Google Scholar 

  17. Corchuelo, B., & Martínez-Ros, E. (2010). Who benefits from R&D tax Policy? Cuadernos de Economía y Dirección de Empresa, 13, 145–170.

    Article  Google Scholar 

  18. COTEC, Fundación Cotec para la Innovación Tecnológica (2012). Informe Cotec 2012. Madrid.

  19. Czarnitzki, D., & Kraft, K. (2004). An empirical test of the asymmetric models on innovative activity: Who invests more into R&D the incumbent or the challenger? Journal of Economic Behavior & Organization, 54(2), 153–173.

    Article  Google Scholar 

  20. Czarnitzki, D., & Lopes-Bento, C. (2012). Evaluation of public R&D policies: a cross-country comparison. World Review of Science, Technology and Sustainable Development, 9(2–4), 254–282.

    Article  Google Scholar 

  21. David, P. A., Bronwyn, H. M., & Toole, A. A. (2000). Is public R&D a complement or substitute for private R&D? A review of the econometric evidence. Research Policy, 29, 497–529.

    Article  Google Scholar 

  22. Doraszelski, U., & Jaumandreu, J. (2011). R&D and productivity: estimating endogenous productivity, Working Paper 3-2011, Boston University.

  23. EU, European Union. (2012). Innovation union scoreboard 2011. EU: Directorate of Enterprise and Industry.

    Google Scholar 

  24. Feldman, M. P., & Kelly, M. R. (2006). The ex-ante assessment of knowledge spillovers: government R&D policy, economic incentives and private firm behaviour. Research Policy, 35(10), 1509–1521.

    Google Scholar 

  25. Gelabert, L., Fosfuri, A., & Tribó, J. A. (2009). Does the effect of public support depend on the degree appropriability? The Journal of Industrial Economics, LVII(4), 736–767.

    Article  Google Scholar 

  26. Gilchrist, S., & Himmelberg, C. P. (1995). Evidence of the role of cash flow for investment. Journal of Monetary Economics, 36, 541–572.

    Article  Google Scholar 

  27. Gilchrist, S., and Himmelberg, C. P. (1999). Investment: fundamentals and finance. In Bernanke, B. S and Rotemberg, J. (eds.), NBER macroeconomics 1998, pp. 223–274.

  28. Goel, R., & Ram, R. (2001). Irreversibility of R&D investment and the adverse effect of uncertainty: evidence from the OECD countries. Economic Letters, 7(2), 287–291.

    Article  Google Scholar 

  29. González, X., Jaumandreu, J., & Pazó, C. (2005). Barriers to innovation and subsidy effectiveness. Rand of Journal Economics, 37, 371–389.

    Google Scholar 

  30. González, X., & Pazó, C. (2008). Do public subsidies stimulate private R&D spending? Research Policy, 42, 125–146.

    Google Scholar 

  31. Grabowski, H., & Vernon, J. (2000). The determinants of pharmaceutical research and development expenditures. Journal of Evolutionary Economics, 10, 201–215.

    Article  Google Scholar 

  32. Guellec, D., & Van Pottelsberghe, B. (1999). Does government support stimulate private R&D?. OECD Economic Studies, 29, 1997/II, 95–122.

    Google Scholar 

  33. Guellec, D., & Van Pottelsberghe, B. (2003). The impact of public R&D on business R&D. Economics of Innovation and New Technologies, 12, 225–244.

    Article  Google Scholar 

  34. Haegeland, T. & Moen, J. (2007). Input additionality in the Norwegian R&D tax credit scheme, Report 2007/47, Statistics Norway.

  35. Hall, B. (2002). The financing of research and development. Oxford Review of Economic Policy, 18(1), 35–51.

    Article  Google Scholar 

  36. Harris, R., Li, Q. C., & Trainor, M. (2009). Is a higher rate of R&D tax credit a panacea for low levels of R&D in disadvantages regions? Research Policy, 38(1), 192–205.

    Article  Google Scholar 

  37. Hauessler, C., Harhoff, D., Müller, E. (2009). To be financed or notthe role of patents for venture capital financing, LMU University of Munich, Discussion Paper, 2009-02.

  38. Herrera, L., & Heijs, J. (2007). Difusión y adicionalidad de las ayudas públicas a la innovación. Revista de Economía Aplicada, 44(XV), 177–197.

    Google Scholar 

  39. Hoffman, K., Milady, P., Bessant, J., & Perren, L. (1998). Small firms, R&D, technology and innovation in the U.K.: A literature review. Technovation, 19, 39–55.

    Article  Google Scholar 

  40. Hubbard, R. (1998). Capital market imperfections and investment. Journal of Economic Literature, 36, 193–225.

    Google Scholar 

  41. Hubbard, R., Kashyap, G., Anil, K., & Whited, T. (1995). Internal finance and firm investment. Journal of Money, Credit, and Banking, 27, 683–701.

    Article  Google Scholar 

  42. Kasahara, H., Shitmotsu, K. & Suziki, M. (2011) How much do R&D tax credits affect R&D expenditure? Japanese tax credit reform in 2003, Discussion papers 11072, Research Institute of economy, trade and industry (RIETI).

  43. Kleibergen, F., & Schaffer, M. (2007). RANKTEST: Stata module to testing the rank of a matrix using the Kleibergen-Paap rk statistic.

  44. Koga, T. (2003). Firm size and R&D tax incentives. Technovation, 23, 643–648.

    Article  Google Scholar 

  45. Lach, S. (2002). Do R&D subsidies stimulate or displace Prívate R&D? Evidence from Israel. Journal of Industrial Economics, 50, 369–390.

    Article  Google Scholar 

  46. Mahlich, J., & Roediger-Schluga, T. (2006). The determinants of pharmaceutical R&D expenditures: Evidence from Japan. Review of Industrial Organization, 28, 145–164.

    Article  Google Scholar 

  47. Marra, M. A. (2004). Incentivos fiscales, inversión en actividades de I + D y estructura de costes. Un análisis por tamaño para una muestra de empresas manufactureras españolas, 1991–1999. Hacienda Pública Española, 170, 9–37.

    Google Scholar 

  48. Marra, M. A. (2006). Efectos de las subvenciones públicas sobre la inversión en I + D de las empresas manufactureras españolas. Revista Galega de Economía, 15(2), 1–20.

    Google Scholar 

  49. Marra, M. A. (2007). Tamaño, restricciones financieras e inversión en I + D. Revista de Economía Aplicada, 45, 99–123.

    Google Scholar 

  50. Marra, M. A. (2008). Efectos de los incentivos fiscales y las subvenciones públicas a la inversión en I + D + i de las empresas manufactureras españolas. Hacienda Pública Española/Revista de Economía Pública, 184, 35–66.

    Google Scholar 

  51. Meghir, C., Ryan, A., & Van Reenen, J. (1996). Job creation, technological innovation and adjustment costs: Evidence from a panel of British firms. Annales D’Economie et de Statistique, 41(42), 255–274.

    Google Scholar 

  52. Meuleman, M., & De Maeseneire, W. (2012). Do R&D subsidies affect SMEs′ access to external financing? Research Policy, 41, 580–591.

    Article  Google Scholar 

  53. OECD .(2001). Science, technology and industry outlookdrivers of growth: Information technology, innovation and entrepreneurship. Mimeo.

  54. OECD. (2005). An overview of public policies to support innovation. Economics Despartment Working Paper, 456.

  55. Pereiras, M. S & Huergo, E. (2006). La financiación de actividades de investigación, desarrollo e innovación: una revisión de la evidencia sobre el impacto de las ayudas públicas, Documento de Trabajo del Centro de Desarrollo Tecnológico Industrial, 1.

  56. Romero, D., Barruso, B., & Delgado, M. J. (2010). Incentivos fiscales a la inversión empresarial en I + D en el Impuesto de Sociedades: cuestiones para el debate. Revista de Economía, 4, 45–53.

    Google Scholar 

  57. Romero-Jordán, D., & Sanz-Sanz, J. F. (2007). Eficacia de los incentives fiscales a la inversión en I + D en España en los años noventa. Hacienda Pública Española, 183–4, 9–32.

    Google Scholar 

  58. Romero-Jordán, D., Sanz-Sanz, J. F., & Álvarez, I. (2009). Further considerations on the link between adjustment costs and the productivity of R&D investment: Evidence for Spain. Applied Economics Letters, 16, 1471–1476.

    Article  Google Scholar 

  59. Schaffer, M. E. (2010). xtivreg2: Stata module to perform extended IV/2SLS, GMM and AC/HAC, LIML and k-class regression for panel data models.

  60. Steicher, G., A. Schibany, & Gretzmacher N. (2004). Input additionality effects of R&D subsidies in Austria. Empirical evidence form firm-level panel data, Tip, technology information policy consulting, Institute of Technology and regional policy-Joanneum Research.

  61. Stock, J. H., & Yogo, M. (2005). Testing for weak instruments in linear IV regression. In J. H. Stock & D. W. K. Andrews (Eds.), Identification and inference for econometric models: essays in honor of Thomas J. Rothenberg: Cambridge University Press.

    Google Scholar 

  62. Takalo, T., & Tanayama, T. (2010). Adverse selection and financing of innovation: Is there a need for R&D subsidies? Journal of Technology Transfer, 35, 16–41.

    Article  Google Scholar 

  63. Wallsten, S. J. (2000). The effects of government-industry R&D programs on private R&D: The case of the small business innovation of research program. RAND Journal of Economics, 31, 82–100.

    Article  Google Scholar 

  64. Warda, J. (2001) Measuring the value of R&D tax provision, en OECD Fiscal measures to promote R&D and innovation, Paris: OECD/DG(96)165.

  65. Warda, J. (2002) A 20012002 update of R&D tax treatment in OECE countries, Report prepared for the OECD Directorate for Science, Technology and Industry.

  66. Whited, T. (1992). Debt, liquidity constraints, and corporate investment: evidence from panel data. Journal of Finance, 4, 1425–1460.

    Article  Google Scholar 

  67. Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. Cambridge, MA: MIT Press.

    Google Scholar 

  68. Wu, Y. (2005). The effects of State R&D tax credits in stimulating private R&D expenditure: A cross-state empirical analysis. Journal of Policy Analysis and Management, 24(4), 785–802.

    Article  Google Scholar 

  69. Zúñiga-Vicente, J., Alonso-Borrego, C., Forcadell F.and Galan J. (2012) Assessing the effect of public subsidies on firm R&D investment: a survey, Working Paper 12–15, Universidad Carlos III de Madrid.

Download references

Author information



Corresponding author

Correspondence to Inmaculada Álvarez-Ayuso.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Romero-Jordán, D., Delgado-Rodríguez, M.J., Álvarez-Ayuso, I. et al. Assessment of the public tools used to promote R&D investment in Spanish SMEs. Small Bus Econ 43, 959–976 (2014).

Download citation


  • R&D
  • Tax credits
  • Public grants
  • Effectiveness
  • Panel data

JEL Classifications

  • C26
  • H32
  • O38
  • L26
  • L60