Blazing the trail : Describing and assessing a new policy instrument whereby indirect tax incentives fuel collaborative innovation

Abstract

Governments incentivize positive externalities from R&D activities via direct (i.e., capital grants) and indirect (i.e., tax incentives for proceeds from operations) subsidies. In this regard, direct subsidies are often presumed to be more explicitly geared toward encouraging collaborative innovation through the formation of consortia. However, the potential of indirect subsidies in this domain remains underexplored in extant studies. Moreover, these mechanisms rely on an unstated assumption: the entities receiving support are the best placed for its use. This article relaxes these assumptions by assessing a unique R&D tax break initiative, called the 64Bis, introduced by the provincial council of Biscay in the Basque Country, Spain. The 64Bis initiative enables an enterprise (Developer) to allocate the proceeds from this mechanism to an external organization (Financier). In exchange, the Financier sponsors the publicly backed R&D project. This article not only describes this policy instrument for the first time but also exploits the quasi-natural experiment conditions to examine between- and within-group heterogeneities. The between-group heterogeneities were analyzed using accounting data and one-to-one propensity score matching in order to construct a synthetic control group. Developers benefiting from this initiative between 2017 and 2021 were found to have acquired more knowledge than comparable enterprises during the same period. The within-group heterogeneities were examined using survey data and fuzzy-set Qualitative Comparative Analysis (fsQCA) to identify optimal configurational pathways that enhance knowledge acquisition via this policy instrument. Altogether, the findings suggest that implementing R&D tax incentives can encourage the formation of collaborative innovation systems, and have significant implications for both academic research and policy development.