Estimating the causal effect of R&D subsidies in a pan-European program

Paul Hunermund*, Dirk Czarnitzki

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


We investigate the effect of Europe's largest multilateral subsidy program for R&D-performing small and medium-sized enterprises. The program applied a specific budget allocation rule, referred to as Virtual Common Pot (VCP), which is designed to avoid cross-subsidization between participating countries. This rule creates exogenous variation in funding status and allows us to identify the causal effect of public R&D grants on firm growth. In addition, we compare the program's effect under the VCP rule with the standard situation of a Real Common Pot (RCP), in which program authorities allocate a single budget according to uniform project evaluation criteria. Our estimates suggest that R&D grants had no average effect on job creation and sales growth, but treatment effects were heterogeneous and positive for high-quality projects. Under an RCP the program would have created 53% more jobs and 48% higher sales.
Original languageEnglish
Pages (from-to)115-124
Number of pages10
JournalResearch Policy
Issue number1
Publication statusPublished - Feb 2019


  • R&D policy
  • Causal inference
  • Virtual Common Pot
  • Joint Programming Initiative
  • European Research Area

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