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Essays on Innovation

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This dissertation focuses on policy issues in the area of Economics of Innovation. As developed countries are becoming increasingly reliant on innovation for economic growth, it is important to enhance our understanding of how public policies affect innovation. The first chapter examines the effect of government research grants on firms' patenting outcomes. Discontinuities in the funding decisions of the Austrian Research Promotion Agency (FFG) allow me to study the effect of public funding in a large sample of Austrian firms. My estimates suggest that a government research grant increases the propensity to file a patent application with the European Patent Office within 4 years by around 10 percentage points. Stronger effects appear for established firms of advanced age. I present evidence that established firms undertake ambitious research projects when they receive grants. Finally, I interpret the findings in an "exploration vs. exploitation" model in which the government agency addresses inefficiency in the direction of research. In the the second chapter, I study the relationship between personal income tax rates and the residential location choice of inventors in Switzerland. Exploiting sharp differences in tax rates for top-income earners across state borders, I find an elasticity of the number of inventors in a municipality with respect to the net-of-tax rate (after-tax income) of around 4.6. This estimate is considerably higher than the elasticities found in previous studies of inventor mobility. Tax policies at the local level, where inventors may lower their tax burden by relocating over short distances, may have particularly strong effects. In addition, I study how location choices depend on other non-pecuniary local amenities. Finally, I document that inventors who have a longer commute are more likely to transfer to a workplace closer to their residence over time. Hence, using income tax policies to draw the residence of inventors closer may have positive spillover effects. The third chapter studies the allocation of R&D subsidies under different modes of trade integration. Two governments pay subsidies to domestic firms that are either technology leaders or technology followers. The model predicts that trade integration leads to increases in aggregate research spending and the share of business R&D funded by government. While subsidies are directed at technology leader firms when markets are separated, trade integration leads to a more even distribution of subsidies that benefits technology follower firms. I show that these findings are broadly consistent with international policy trends. In particular, over the past decades, indiscriminate R&D tax credits have increased in importance relative to direct, discretionary funding of business R&D.

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  • 05/13/2019
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