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The present paper investigates the effectiveness of R&D subsidies given to start-ups. Taking an aggregate view rather than evaluating a single program, the authors estimate the impact of R&D subsidies on start-ups' employment growth and their patent output. A unique data set on start-ups in the East German county of Thuringia allows one to focus on those start-ups that conduct R&D within the first three business years. They conduct propensity score matching to address the selection bias between subsidized and non-subsidized start-ups. They find that R&D subsidies lead to an increase in employment growth of about 66%. Furthermore, subsidized start-ups show a 2.8 times higher patent output. These estimates provide evidence for the additionality of R&D subsidies within the first three business years.
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