Are Public Subsidies and Tax Credits Effective in Stimulating Business R&D: Empirical Evidences from Chongqing

The incentive effects of public subsidies and tax credits business R&D have been studied by using fixed effect model based on a panel data of Chongqing large and medium-sized industrial enterprises in 1998-2007. The major conclusions are that public subsidies and tax credits both are statistically significantly effective in stimulating more business R&D, and tax credits are much more effective. On the one hand, the incentive effects of public subsidies on firms with high R&D intensity are statistically significantly greater than that of public subsidies on firms with low R&D intensity, while the incentive effects of public subsidies on firms with high subsidies intensity are statistically significantly smaller than that of public subsidies on firms with low subsidies intensity, which means that the margin effect of public subsidies decreases progressively. On the other hand, the incentive effects of tax credits on firms with high R&D intensity and that of tax credits on firms with low R&D intensity are not statistically significantly different, while the incentive effects of tax credits on firms with high subsidies intensity are statistically significantly smaller than that of tax credits on firms with low subsidies intensity, which means that public subsidies and tax credits are substitutes to some certain. The empirical results are helpful for Chongqing government to draft some appropriate policies to stimulate much more business R&D.