Evaluating the impact of innovation incentives: evidence from an unexpected shortage of funds

To evaluate the effect of an R&D subsidy, one needs to know what the subsidized firms would have done without the incentive. This article studies an Italian pro- gram of subsidies for the applied development of innovations, exploiting a discontinuity in program financing due to an unexpected shortage of public money. To identify the effect of the program, the study implements a regression discontinuity design and compares firms that applied before and after the shortage occurred. The results indicate that the program was not effective in stimulating innovative investment.