TY  - JOUR
AU  - Lach,Saul
TI  - Do R&D Subsidies Stimulate or Displace Private R&D? Evidence from Israel
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7943
PY  - 2000
Y2  - October 2000
UR  - http://www.nber.org/papers/w7943
L1  - http://www.nber.org/papers/w7943.pdf
N1  - Author contact info:
Saul Lach
Department of Economics
Hebrew University
Jerusalem, 91905
ISRAEL
Tel: 972-2-5883253
Fax: 972-2-5816071
E-Mail: saul.lach@huji.ac.il
AB  - In evaluating the effect of an R&D subsidy we need to know what the subsidized firm would have spent on R&D had it not received the subsidy.  Using data on Israeli manufacturing firms in the 1990s we find evidence suggesting that the R&D subsidies granted by the Ministry of Industry and Trade stimulated long-run company-financed R&D expenditures: their long-run elasticity with respect to R&D subsidies is 0.22.  At the means of the data, an extra dollar of R&D subsidies increases long-run company-financed R&D expenditures by 41 cents (total R&D expenditures increase by 1.41 dollars). Although the magnitude of this effect is large enough to justify the existence of the subsidy program, it is lower than expected given the dollar-by-dollar matching upon which most subsidized projects are based.  This less than full' effect reflects two forces: first, subsidies are sometimes granted to projects that would have been undertaken even in the absence of the subsidy and, second, firms adjust their portfolio of R&D projects-closing or slowing down non-subsidized projects-after the subsidy is received.
ER  -