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Public funds additionality in R&D expenditure in presence of essential heterogeneity: an empirical investigation using the Italian CIS3 data

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This paper undertakes an empirical estimation of the additionality of public funding on both the propensity to initiate R&D activity and the intensity of R&D spending of Italian enterprises for the period 1998–2000, using data from the Third Community Innovation Survey and from firms' financial accounts. The chosen methodology (Endogenous Switching Type II–Tobit) takes into account the possibility that decisions about both starting an R&D activity (sample selection effect) and applying for/obtaining public funding (essential heterogeneity) are influenced by private knowledge of enterprises' idiosyncratic propensities in R&D spending. The present analysis shows that both these effects are indeed important and that they contribute to explain most of the additionality found with less sophisticated models.

Keywords: public funding, additionality, R&, D expenditure, Community Innovation Survey, CIS, Italy, Heckman selection models, endogenous treatment, essential heterogeneity, research and development, research spending

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