Public subsidies to business R & D: do they stimulate private expenditures?

The purpose of this paper is to obtain new evidence about a fundamental question of empirical studies on technology policy. Is public R & D a complement to or a substitute for private R & D? We examine, at an industry level, the relationship between private R & D expenditures and public subsidies in Spain, using panel data and controlling the interindustry differences in technological opportunities. The results suggest that public subsidies have complemented private R & D. This is an interesting result because technology policy was reoriented in the 1990s with a reduction of direct government subsidies for R & D and an increase in tax incentives.