R&D fiscal incentives and innovation decisions.

This paper analyzes the effectiveness of R&D fiscal incentives on firm behavior. Our aim is to explore two decisions: carrying out R&D activities or not and the level of the firm' technological effort. In this empirical exercise we use the R& D cost of capital as a measure of fiscal incentives and study the impact of the estimated cost on both decisions using a panel sample of 2,000 Spanish manufacturing firms in the period 1990-1998. Main findings show positive effects of fiscal incentives, higher in the first decision, especially in SMEs, than in the second. Results also show that the effect both decisions increases for the financially constrained firms.