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Philippe Larédo, Christian Köhler and Christian Rammer

R & D tax incentives are a policy tool to support business R & D. Their main rationale is to compensate for limited appropriability of private R & D due to knowledge spillovers. By granting a tax reduction depending on either the volume of or increase in a firm’s R & D expenditure, governments co-finance private R & D. The key direct objective of R & D tax incentives is to raise business R & D expenditure, and most evaluations undertaken have analysed the effectiveness of this instrument based on input additionality. In recent years, fiscal incentives have also been used to target other policy objectives, including the support of small and young firms, strengthening of industry–science linkages and promoting R & D in certain thematic areas. Furthermore there has been more and more attention by governments on broader impacts: the competitiveness of their industry and the international attractiveness of their country as a location for innovation. However, very few evaluations have addressed these issues, and little is yet known about the long-term welfare effects.

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Paul Cunningham, Abdullah Gök and Philippe Larédo

Direct support of R & D to individual companies, particularly through grants and loans, is a cornerstone of innovation policy. While initially targeted at large firms, the focus of direct measure is now very often on SMEs, and on specific sectors or technologies or – more recently – targeted at societal challenges and to mitigate the adverse financial climate within which firms currently operate. R & D grants and loans are generally simple instruments to implement. They show a range of quantifiable input effects (e.g. increased R & D expenditure) and output effects (e.g. increased turnover with innovation based on R & D and an increased level of invention measured with patents). Evaluations also find a change towards riskier and more ambitious innovation activities supported by direct measures, especially for small and younger firms. However, evaluations struggle to determine the overall effects, especially the less tangible outcomes such as effects on behaviour, skills and capacity, and long-term spillover effects. Also, the ‘average’ success of a programme tends to be based on a small number of successful cases. The chapter finds a crowding-out effect of firm spending on R & D above a subsidisation rate of 20 per cent, and also indicates that, while firms do better with repeated support, especially when linking direct and indirect support, this risks creating a subsidy culture for a few and lack of support for many. Finally, direct support measures perform better when accompanied by a complementary set of services and further support.

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Paul Cunningham, Jakob Edler, Kieron Flanagan and Philippe Larédo

As innovation policy instruments are never applied in isolation, this chapter reviews the evidence on policy mixes and the interplay of instruments in innovation policy. The chapter starts with a multi-dimensional conceptualisation of mixes and interplay, in particular distinguishing between designed versus emergent mixes. Overall, the evidence and evaluation practice as to policy mix and interplay are scarce, reflecting not only the challenges of analysing the interplay of instruments, but also the general neglect in policy making to take interplay into consideration. The chapter first presents and analyses evidence from the few evaluations which have explicitly examined how instruments interact, focusing on interplay between direct and indirect measures as well as supply and demand measures. In general, the additive effect of multiple measures targeting the same actor groups is limited. Secondly, the chapter looks at evidence from reviews of policy mixes at the country or system level. Those country reviews have mainly been conducted under the auspices of the OECD or the EU. They highlight the trends of applying policy mixes and comment on their appropriateness, identify common policy gaps and coordination issues, but rarely deliver hard evidence of system-wide interplay. Thirdly, the review looks at instances where policies or instruments have been deliberately used together, as designed mixes across policy institutions or as the portfolios of specific agencies. The chapter finally draws lessons as to policy mix practice using the conceptual framework developed.