Innovation Subsidies: Does the Funding Source Matter for Innovation Intensity and Performance? Empirical Evidence from Germany

In this paper we analyze the effect of European and national funding on innovation input and output at the firm level. In terms of innovation input, we do not find evidence that one policy crowds out the effect of the other. Instead, the policies are complements. In terms of output, we find that subsidy recipients are more active with respect to patenting. A citation analysis of patents reveals that the subsidy recipients file patents that are more valuable (in terms of forward citations) than those filed in the counterfactual situation of receiving no public support. These results suggest that public funding triggers socially beneficial research projects and that the co-existence of national and European policies does not lead to crowding-out effects when compared to a hypothetical world of a closed economy with no supplemental European policies.