Are Complementary Policies Substitutes? Evidence from R&D Subsidies in the United Kingdom
Abstract
This paper studies whether grants and tax incentives for private R&D are complements or substitutes. I use multiple quasi-experimental research designs to examine firms in the United Kingdom and find that increasing tax credit generosity substantially enhances the effect of grant funding on R&D for small firms, suggesting that the instruments are complements. Financial constraints are likely at play. The effects are strongest for firms that appear constrained, and the combination of policies increases R&D “entry.” Furthermore, I find that the instruments are substitutes for larger firms, which are usually less constrained. Some alternative explanations can be ruled out. (JEL D22, H25, H81, L25, O31, O38)
Fields of Study & Subjects
Innovation Policy and R&D
Corporate Taxation and Avoidance
Firm Innovation and Growth
Publication details
- Journal / source
- American Economic Journal Economic Policy
- Publisher
- American Economic Association
- Volume
- 18
- Issue
- 1
- Pages
- 92–126
- Publication date
- 29 January 2026
- Language
- EN