Government intervention in private R&D activity is common practice nowadays. However, its impact may not be unambiguously positive. First, companies may simply replace private R&D budgets with the public R&D grant. Second, even if an increase in private R&D investment is confirmed, it may not automatically induce more R&D output: the additional R&D budget may be crowded out by duplicate or more risky research, or a mere increase in researcher wages.
This paper empirically analyzes the effect of public R&D subsidies on private R&D investments, employment and wages in Flanders, using a parametric treatment effects models on the funding status as well as IV regression models on the amount of funding. Positive additionality effects are supported, measured in terms of R&D expenditure, employment and wages. However, partial crowding out cannot be rejected.