Seminar – Welfare Effects of R&D Support Policies

Professor Otto Toivanen, Aalto University Business School

We conduct a welfare analysis of R&D subsidies and tax credits using a model of innovation policy incorporating externalities, limited R&D participation and financial market imperfections.

We estimate the model using R&D project level data from Finland. The optimal R&D tax credit rate (0.24) is lower than the average R&D subsidy rate (0.36).

The intensive, not the extensive margin of R&D is important for policy. Tax credits and subsidies increase R&D investments and spillovers compared to laissez-faire but to levels below the first best. R&D support policies don’t improve welfare.

Speaker bio

Otto Toivanen (born 1965, Finland) obtained his PhD from University of Warwick (UK) in 1995. He is a professor in the Department of Economics at Aalto University Business School and the Director of the Helsinki Graduate School of Economics.

Before his current position he was a professor at KU Leuven. He has also been the director of HECER, a joint venture of all economics departments in Helsinki, has held positions at University of Warwick and Helsinki School of Economics, and has been a visiting scholar at MIT, NBER and University of California, Berkeley. Otto Toivanen specialises in industrial organisation and economics of innovation.

He has published his research in e.g. Review of Economics and Statistics, RAND Journal of Economics, American Economic Journal: Microeconomics, Economic Journal and American Political Science Review. He is currently an associate editor of the International Journal of Industrial Organisation and a research fellow of CEPR, Etla, MaCCI and ZEW.

He has been a member of the executive committee of the European Association for Research in Industrial Economics and an associate editor of the Journal of Industrial Economics.

He holds or has held several positions of trust, e.g. membership of the Economic Council of the Finnish Ministry of Finance, chair of the scientific council of VATT Institute of Economic Research and membership of the Economic Advisory Group for Competition Policy in DG Competition of the European Union.

He has acted as a consultant for private sector firms and for public sector agencies such as the European Commission and the Finnish government.