Reports on Special Business Projects
Direct and Indirect Support for Innovation in Canada

Acknowledgments

We would like to acknowledge the attentive comments provided by two anonymous reviewers.

1 Introduction

Economic theory suggests that, because of the difficulty for private firms to appropriate all innovation benefits and because of liquidity constraints, the private sector invests less in research and development (R&D) than is socially desirable (Hall and Van Reenen, 2000; Organisation for Economic Co-operation and Development [OECD], 2020). Governments correct this market failure by providing incentives to private firms to compensate for the gap between the private and social returns to R&D expenditures and to alleviate firms’ financial constraints. The main tools governments use to achieve these objectives include direct instruments such as R&D grants and contributions, indirect instruments such as R&D tax credits, or a mixture of the two.

According to the economic literature, the main drivers of economic growth are the increase in labour force, investment in machinery and equipment, and increase in productivity. Research suggests that productivity growth has become the main source of economic growth in developed countries because of the aging population and diminishing returns to capital, and that innovation is the main contributor to productivity growth (Lynch and Sheikh, 2011; Science, Technology and Innovation Council, 2012; OECD, 2023). Because of the importance of R&D and innovation for the Canadian economy, the federal government has taken several measures to improve the R&D activity of the business sector with the objective of boosting innovation and productivity. This effort includes finding the right balance between direct and indirect R&D support instruments to increase innovation and economic growth.

This study compares the Government of Canada’s direct and indirect measures to support R&D, as captured by business innovation and growth support (BIGS) programs and the Scientific Research and Experimental Development (SR&ED) tax incentive program. BIGS and SR&ED are two central instruments that the Canadian government uses to stimulate R&D expenditures in the business sector. Section 2 provides a background on direct and indirect tools that encourage R&D expenditures. Section 3 introduces the Government of Canada’s direct and indirect supports, as represented by BIGS and SR&ED. Section 4 compares these two tools in terms of volume, target groups and the relationship with R&D expenditures. Section 5 concludes.

2 Government tools to support innovation

Government intervention in R&D can be via supply-push instruments, that aim at increasing the supply of innovation activities, and demand-pull instruments, that attempt to increase the demand for innovation (Criscuolo et al., 2022). Supply-push instruments have been the main tools used by governments to support business innovation, and they are grouped into direct or indirect instruments. Direct instruments to support R&D include tools such as grants and loans. Indirect instruments include R&D tax credits, R&D allowances and reductions in R&D workers’ wage taxes (Science, Technology and Innovation Council, 2011). The main difference between the two instruments is that tax incentives usually allow private firms to choose projects, while in the case of direct subsidies, the government usually determines the project, either because it spends the funds directly on the project or because the funds are distributed via grants to the firms for specific research objectives. Government procurement can be used as a tool to encourage economic activities by increasing demand. In R&D support through procurement, the government increases the demand for innovation activities by contracting out research projects to the private and public sectors. Government R&D contracts are usually used to help government departments better define and fulfill their mandates. For example, a large portion of R&D in the aerospace and defence industries is carried out this way. The main difference between contracts and grants is that grants are usually competitive financial awards that do not carry any future public commitment to purchase (David et al., 2000). Governments may also directly engage in R&D activities through their research labs. Examples include the National Research Council Canada and the National Science Foundation in the United States.

The choice of R&D support instrument is an important point in the innovation system. The best balance of tools varies from country to country and is determined by the type of market failure being addressed, the type of R&D that the government wants to stimulate and the government’s public policy objectives. The advantages and disadvantages of direct and indirect support have been discussed in the literature (Hall and Van Reenen, 2000; David et al., 2000; Bérubé and Mohnen, 2009; Czarnitzki et al., 2011; OECD, 2020; OECD 2022); they can be summarized as follows.

1. Advantages of direct support
• It can directly correct market failures because it can target specific externalities, asymmetric information or public good problems associated with innovation.
• It can focus on specific barriers to innovation. Examples of barriers include undersupply of private investment in R&D, the failure of market actors to supply public goods, gaps in the market for early-stage equity finance, and difficulties faced by some small and medium-sized enterprises (SMEs) in accessing public procurement markets.
• It offers more flexibility to target projects with higher social rates of return. This means that, at least in theory, such funding could be concentrated in areas where there is a large gap between social and private rates of return.
• More direct support can be provided to individual firms for specific R&D projects, and it can focus on activities and actors that make the greatest contribution to meeting public policy goals, e.g., environmental improvement.
• The effects of direct support can be measured better than those from indirect support for the specific intervention.
2. Disadvantages of direct support
• Direct support may replace some or all of the R&D that the performing firms would otherwise have been ready to undertake (R&D crowding out).
• Direct support may affect private sector investments negatively in the same technological areas because the expected rates of return to investment by firms that do not receive the support tend to be lower than the rates of those that receive the support. In other words, direct support could leave the receiving companies well positioned to enter the final product market with significant first-mover advantages.
• It may displace private real R&D investment by increasing the price of R&D inputs, particularly increasing researchers’ salaries.
• The administration of direct support by the government could pose problems related to:
• information asymmetries between the innovator and government because the government agency that provides the funds does not necessarily have enough information to assess the merits of the research project;
• the moral hazard on the part of the inventor or the innovating firm, as the firm may change its activities after receiving the funds;
• costly bureaucratic procedures;
• bureaucratic objectives;
• political pressure on the government agency that administers R&D grants to fund specific projects to support certain stakeholders;
• lack of expertise in the allocation of the support.
• There is the possibility that the politics of innovation policy would put pressure on the government agency to fund projects with a high private return, to ensure the appearance of a successful public R&D policy (picking the winner).

The various elements mentioned above could affect the impact of direct support in eliminating the gap between the social and private returns to R&D.

3. Advantages of indirect support
• Tax credits are generally neutral in terms of R&D support, in the sense that all firms that perform eligible R&D can claim their expenditures, irrespective of the industry, firm size and objective of the innovation activity.
• Tax credit administration is easier to set up and maintain than direct support.
• R&D tax credit administration does not involve arbitrary decisions regarding the distribution of R&D support among sectors, regions, industries or firms.
• Indirect support does not interfere in firms’ R&D strategies and lets market mechanisms determine R&D priorities.
• Evidence suggests that the effects of tax incentives are less likely to be absorbed into higher wages and hence displace R&D expenditures.
• Indirect support may be more accessible than direct support by being equally available to SMEs, as well as large firms.
4. Disadvantages of R&D support
• Although R&D tax credits stimulate overall R&D activity, they do not address the sources of market failures in innovation activities.
• It affects the composition of R&D, favouring activities that promise the largest short-term profit.
• Consequently, projects with high potential social rates of return, basic research and research infrastructure may be less stimulated by tax credits.
• The two latter issues could lead to rather weaker spillover benefits to other firms and industries.

As illustrated above, both direct and indirect instruments to support R&D have advantages and disadvantages. A review of the existing literature suggests that it is not easily possible to conclude in favour of one instrument over the other (Parsons and Phillips, 2007; David et al., 2000; Czarnitzki and Hussinger, 2018; OECD, 2020). A study by the OECD suggests similar degrees of input additionality for both direct and indirect R&D supports, measured at 1.4%, as well as potential complementarity between the two instruments. It also concludes that direct supports appear to promote more research, while tax support is more associated with the increase in experimental development (OECD, 2020). Czarnitzki et al. (2011) and Demers (2021) show the positive effect of R&D tax credits and R&D direct support on business performance in Canada. Bérubé and Mohnen (2009) found that Canadian firms that benefited from both policy instruments introduced more new products than their counterparts that benefited from only R&D tax incentives. These recipients also made more world-first product innovations and were more successful in commercializing their innovations.

Over the last decade, R&D tax incentives have become a major business innovation support policy tool in OECD countries, such that their share in total government support for business R&D in the OECD increased from 30% in 2000 to around 50% in 2017 (OECD, 2020). The next section discusses the Government of Canada’s direct and indirect tools to support innovation.

3 Government support for innovation in Canada

3.1 Overview

Countries differ in the extent to which they rely on direct and indirect measures to support R&D. Moreover, the design of tools differs substantially from one country to another, in terms of the scope and definition of R&D expenditures; the choice of eligible R&D expenditures and tax instruments; targeted tax relief provisions; types of firms, industries or activities; etc. (OECD, 2022).

Charts 1.a to 1.c present direct and indirect government support for business R&D among the OECD countries. In 2019, total government support for business R&D in Canada was at 0.25% of gross domestic product, slightly above the OECD average. Moreover, the marginal federal tax subsidy rate for SMEs was 0.31%, which was higher than the OECD median of 0.20%. The rate for large enterprises was 0.13%, which was lower than the OECD median of 0.17% (OECD, 2021).

Data table for Chart 1a



Data table for Chart 1a
Table summary
This table displays the results of Data table for Chart 1a. The information is grouped by Country (appearing as row headers), Direct government funding of BERD, Tax incentive support for BERD and Subnational tax support for BERD, calculated using percent of GDP units of measure (appearing as column headers).

Country	Direct government funding of BERD	Tax incentive support for BERD	Subnational tax support for BERD
	percent of GDP
Russia	0.3608	0.1121	0.0000
United Kingdom	0.1129	0.3065	0.0000
France	0.0697	0.2870	0.0000
Belgium	0.0855	0.2554	0.0000
Austria	0.0809	0.1921	0.0000
Ireland	0.0941	0.1763	0.0000
Japan	0.1650	0.0999	0.0000
Canada	0.0573	0.1426	0.0523
Netherlands	0.0911	0.1454	0.0000
United States	0.1067	0.1192	0.0000
Norway	0.1117	0.1137	0.0000
Portugal	0.0153	0.2004	0.0000
OECD	0.0814	0.1150	0.0000
Italy	0.0206	0.1732	0.0000
Türkiye	0.0803	0.1105	0.0000
Greece	0.1811	0.0079	0.0000
Note: BERD stands for business expenditures in research and development, OECD stands for Organisation for Economic Co-operation and Development, and GDP stands for gross domestic product. Source: Authors' calculations based on the Organisation for Economic Co-operation and Development, 2024.

Data table for Chart 1b



Data table for Chart 1b
Table summary
This table displays the results of Data table for Chart 1b. The information is grouped by Country (appearing as row headers), Direct government funding of BERD, Tax incentive support for BERD and Subnational tax support for BERD, calculated using percent of GDP units of measure (appearing as column headers).

Country	Direct government funding of BERD	Tax incentive support for BERD	Subnational tax support for BERD
	percent of GDP
European Union	0.0733	0.1032	0.0000
Slovenia	0.0674	0.0989	0.0000
Australia	0.0266	0.1232	0.0000
Slovak Republic	0.1158	0.0273	0.0000
Korea	0.0062	0.1223	0.0007
New Zealand	0.1133	0.0137	0.0000
Sweden	0.1056	0.0145	0.0000
Finland	0.1109	0.0000	0.0000
Hungary	0.0320	0.0531	0.0125
Czechia	0.0443	0.0473	0.0000
Mexico	0.0892	0.0017	0.0000
Costa Rica	0.0809	0.0000	0.0000
Denmark	0.0467	0.0309	0.0000
Poland	0.0422	0.0242	0.0000
Lithuania	0.0367	0.0264	0.0000
Brazil	0.0075	0.0538	0.0000
Note: BERD stands for business expenditures in research and development and GDP stands for gross domestic product. Source: Authors' calculations based on the Organisation for Economic Co-operation and Development, 2024.

Data table for Chart 1c



Data table for Chart 1c
Table summary
This table displays the results of Data table for Chart 1c. The information is grouped by Country (appearing as row headers), Direct government funding of BERD, Tax incentive support for BERD and Subnational tax support for BERD, calculated using percent of GDP units of measure (appearing as column headers).

Country	Direct government funding of BERD	Tax incentive support for BERD	Subnational tax support for BERD
	percent of GDP
Estonia	0.0464	0.0000	0.0000
Malta	0.0136	0.0259	0.0000
Israel	0.0391	0.0000	0.0000
Germany	0.0368	0.0000	0.0000
Switzerland	0.0335	0.0000	0.0000
Croatia	0.0174	0.0079	0.0000
South Africa	0.0128	0.0055	0.0000
Chile	0.0116	0.0065	0.0000
Luxembourg	0.0117	0.0000	0.0000
Bulgaria	0.0105	0.0000	0.0000
Colombia	0.0016	0.0056	0.0000
Latvia	0.0055	0.0000	0.0000
Cyprus	0.0039	0.0000	0.0000
Thailand	0.0000	0.0035	0.0000
Argentina	0.0021	0.0000	0.0000
Note: BERD stands for business expenditures in research and development and GDP stands for gross domestic product. Source: Authors' calculations based on the Organisation for Economic Co-operation and Development, 2024.

Although the OECD (2022) suggests that more countries rely on tax supports to encourage business R&D now than a decade ago, Canada has shifted toward direct measures. This is because Canada’s indirect support had been historically high and one of the most generous in the world, yet its business expenditures on R&D were lower than the OECD average (Parsons and Phillips, 2007; Science, Technology and Innovation Council, 2011; Government of Canada, 2011; OECD, 2012; Innovation, Science and Economic Development Canada [ISED] 2019). After reviewing 60 government stimulus R&D programs for the 2010/2011 fiscal year, the Science, Technology and Innovation Council (2011) estimated that out of approximately $5 billion in spending to support R&D, about 70% was contributed from the indirect measure (SR&ED), and the other 30% came from 59 direct expenditure programs. Given the importance of the right combination of direct and indirect R&D support instruments, the Science, Technology and Innovation Council (2011) recommended decreasing spending through the SR&ED program and allocating the savings to direct measures. According to the report, the heavy reliance on SR&ED implied that federal support for innovation might be overweighted toward subsidizing the cost of business R&D, rather than other important aspects of innovation. Similarly, the Science, Technology and Innovation Council (2014) reported that in 2013, Canada ranked 4th out of 38 countries in indirect government support for business R&D but 28th in direct funding. Chart 2 presents the trend of government support for business R&D from 2000 to 2019, suggesting that the importance of tax incentives has been high in Canada, in both absolute and relative terms (OECD, 2021).

Data table for Chart 2



Data table for Chart 2
Table summary
This table displays the results of Data table for Chart 2. The information is grouped by Year (appearing as row headers), Direct government funding of BERD, Tax incentive support for BERD, Subnational tax support for BERD and R&D tax support, calculated using percent of GDP and millions of 2015 dollars units of measure (appearing as column headers).

Year	Direct government funding of BERD	Tax incentive support for BERD	Subnational tax support for BERD	R&D tax support
	percent of GDP			millions of 2015 dollars
2000	0.03	0.19	0.05	2,795
2001	0.04	0.21	0.06	3,086
2002	0.03	0.20	0.06	3,031
2003	0.03	0.19	0.06	2,956
2004	0.02	0.23	0.06	3,640
2005	0.03	0.19	0.08	3,218
2006	0.03	0.19	0.08	3,278
2007	0.02	0.21	0.08	3,753
2008	0.02	0.20	0.09	3,650
2009	0.03	0.20	0.09	3,491
2010	0.04	0.18	0.09	3,331
2011	0.03	0.18	0.08	3,315
2012	0.04	0.19	0.08	3,547
2013	0.04	0.18	0.08	3,443
2014	0.04	0.13	0.07	2,639
2015	0.04	0.13	0.06	2,670
2016	0.05	0.13	0.05	2,687
2017	0.06	0.13	0.05	2,767
2018	0.06	0.13	0.05	2,676
2019	0.06	0.14	0.05	3,072
Note: BERD stands for business expenditures in research and development, R&D stands for research and development, and GDP stands for gross domestic product. Source: Authors' calculations based on the Organisation for Economic Co-operation and Development, 2024.

3.2 Business innovation and growth support programs

Most of the Government of Canada’s direct support for business innovation is captured via the BIGS initiative. BIGS programs support business innovation and growth activities such as funding and consulting services for enterprises, industry-facing R&D, partnerships, technology development, commercialization, and exports. The scope does not currently include fundamental science, tax expenditures, provincial and territorial programs, and Crown corporations of the Government of Canada (Statistics Canada, 2023). Also, BIGS is not exclusive to R&D support; it includes support for business growth as well.

In 2019, 18 government departments provided more than $3.1 billion in support to around 22,000 ultimate beneficiary enterprises through 136 program streams (Treasury Board of Canada Secretariat [TBS], 2021). As shown in Chart 3, both total investment and the number of recipients increased from 2007/2008 to 2018/2019. The increase in BIGS spending and in the number of recipients is aligned with recommendations for the Government of Canada to provide more direct financial support to firms to stimulate innovation (TBS, 2018; ISED, 2019).

Chart 4 presents the average annual value of BIGS from 2014/2015 to 2018/2019 by organization. The five organizations reporting the highest average annual spending on BIGS over the period are ISED, the Natural Sciences and Engineering Research Council, National Research Council Canada, the Atlantic Canada Opportunities Agency, and Natural Resources Canada (NRCan).

Data table for Chart 3



Data table for Chart 3
Table summary
This table displays the results of Data table for Chart 3. The information is grouped by Year (appearing as row headers), number and millions of dollars (appearing as column headers).

Year	number	millions of dollars
2007	4,287	691
2008	6,103	888
2009	7,440	1,108
2010	8,425	1,287
2011	7,766	1,360
2012	10,188	1,565
2013	18,991	1,569
2014	20,453	1,589
2015	22,029	1,819
2016	22,733	1,915
2017	22,405	1,902
2018	21,190	2,399
Source: Statistics Canada, Table 33-10-0221-01.

BIGS departments and agencies provide funding or in-kind support to enterprises through program streams. In 2019/2020, 136 program streams were identified as BIGS programs. About two-thirds of the program streams were in the ISED portfolio, consistent with its mandate and focus on enterprise support. Outside the ISED portfolio, NRCan and Agriculture and Agri-Food Canada accounted for the greatest number of program streams, at 15% and 6%, respectively.

Departments and agencies may deliver funds directly to enterprises as the final recipients, or they may transfer funds to an intermediary—typically a not‑for‑profit organization—which then delivers the funds or services to enterprises. Some programs provide support directly to final recipients and indirectly through intermediaries.

Data table for Chart 4



Data table for Chart 4
Table summary
This table displays the results of Data table for Chart 4. The information is grouped by Federal departments and agencies (appearing as row headers), Millions of dollars (appearing as column headers).

Federal departments and agencies	Millions of dollars
Innovation, Science and Economic Development Canada	478
Natural Sciences and Engineering Research Council	287
National Research Council Canada	267
Atlantic Canada Opportunities Agency	204
Natural Resources Canada	201
Canada Economic Development for Quebec Regions	128
Western Economic Diversification Canada	101
Federal Economic Development Agency for Southern Ontario	92
Canadian Heritage	82
Agriculture and Agri-Food Canada	31
Public Services and Procurement Canada	24
Canadian Space Agency	22
Canadian Northern Economic Development Agency	20
Global Affairs Canada	9
Canadian Institutes of Health Research	8
National Defence	7
Fisheries and Oceans Canada	5
Environment and Climate Change Canada	4
Source: Treasury Board of Canada Secretariat, 2021.

3.3 Scientific Research and Experimental Development tax incentive program

The SR&ED tax incentive program is the Government of Canada’s main indirect tool to support innovation. SR&ED uses tax incentives to encourage Canadian businesses of all sizes and in all sectors to conduct R&D in Canada. In 2019, the program provides more than $3 billion in tax incentives to over 20,000 firms annually, making it the single largest federal program that supports business R&D in Canada (Canada Revenue Agency [CRA], 2023).

To claim SR&ED tax incentives, the work of businesses must meet two requirements:^Note

• The work is conducted for the advancement of scientific knowledge or for the purpose of achieving a technological advancement.
• The work is a systematic investigation or search that is carried out in a field of science or technology by means of experiment or analysis.

Eligible work may include basic research, applied research and experimental development, including activities related to engineering, design, operations research, mathematical analysis, computer programming, data collection, testing and psychological research.

Examples of work that does not qualify for the SR&ED tax incentive program include market research or sales promotion; quality control or routine testing of materials, devices, products or processes; research in the social sciences or the humanities; the prospecting, exploration or drilling for, or production of, minerals, petroleum or natural gas; the commercial production of a new or improved material, device or product, or the commercial use of a new or improved process; style changes; routine data collection.

Note that BIGS and SR&ED can be used together, though not for the same expenditures. The next section compares BIGS and SR&ED.

4 Business innovation and growth support and Scientific Research and Experimental Development tax incentive program statistics

In 2019, a total of 22,050 enterprises received BIGS and 23,140 enterprises received SR&ED (Table 1). These recipients accounted for 0.79% and 0.82% of all enterprises in Canada, respectively.

Table 1 presents the share of BIGS and SR&ED recipients by revenue size in 2019. For both BIGS and SR&ED, the highest number of recipients belonged to the revenue group of $1,000,000 to $9,999,999, followed by the revenue group of $100,000 to $999,999. SR&ED covered relatively more enterprises in these two categories. It should be noted that 19.21% of BIGS recipients do not have a revenue size (see footnote 1 of Table 1), compared with 2.01% of SR&ED recipients.

 

Table 2 presents the number of BIGS and SR&ED recipients in 2019 by employment size and their shares. For both BIGS and SR&ED, most recipients had fewer than 100 employees. SR&ED targets smaller recipients (fewer than 20 employees), compared with BIGS. Tables 1 and 2 suggest that BIGS and SR&ED had similar coverage in terms of the number of recipients in 2019, though their distributions by revenue and employment size are slightly different.

Table 3 presents the value of BIGS and SR&ED by revenue size in 2019. The total value of BIGS was $3.13 billion, and that of SR&ED was $3.28 billion. Even though less than 20% of BIGS and SR&ED recipients had a revenue of $10 million or more, they received 32.81% of the total value of BIGS and 57.38% of that of SR&ED. The total value received for both BIGS and SR&ED increases with the recipient’s revenue size.



Table 4 presents the value of BIGS and SR&ED by employment size in 2019. The largest value shares belong to enterprises with 5 to 99 employees and those with 500 employees or more. BIGS provided slightly more support to large enterprises than SR&ED.



Tables 5 and 6 show the number of enterprises that received BIGS and SR&ED and the values by industry in 2019. Most recipients were in manufacturing (North American Industry Classification System [NAICS] 31 to 33); professional, scientific and technical services (NAICS 54); and educational services, and health care and social assistance (NAICS 61 and 62). Agriculture, forestry, fishing and hunting (NAICS 11) included significantly more SR&ED recipients than BIGS, while the value of BIGS was higher for this sector. Within NAICS 54, computer systems design and related services (NAICS 5415) and scientific research and development services (NAICS 5417) included most recipients.

 

Table 7 shows that in 2019, most BIGS and SR&ED recipients were in Ontario, followed by Quebec, British Columbia and Alberta. Table 8 shows the same distribution in terms of value. However, tables 7 and 8 suggest that BIGS was received more than SR&ED in the four Atlantic provinces and SR&ED was received more than BIGS in Ontario. Moreover, while more enterprises received BIGS than SR&ED in Quebec and British Columbia, the total value of SR&ED was more than that of BIGS in these provinces. The situation was reversed in Alberta.

 

Table 9 suggests that R&D performers receive more SR&ED than BIGS. This result is not surprising, given that SR&ED is a tax incentive program for R&D spending. Tables 10 and 11 suggest that most R&D is conducted by large enterprises, either in terms of revenue or in terms of employment, followed by medium-sized enterprises.

  

Tables 12 and 13 suggest that both BIGS and SR&ED support experimental development more than basic research.^Note While more basic or applied R&D performers received SR&ED than BIGS in 2019, the findings suggest that the percentage of spending in basic or applied research was higher for BIGS recipients compared to SR&ED recipients. Table 14 presents the relationship between R&D spending, BIGS and SR&ED by industry.

  

Tables 15 and 16 suggest that BIGS and SR&ED had similar impacts on the growth of enterprises’ economic indicators. However, more analysis is required to verify whether there is a statistically significant difference between the impacts of these instruments.

 

Table 17 presents the breakdown of BIGS and SR&ED recipients by type of support. Among the firms that received BIGS and SR&ED, almost three-quarters received advisory services and over two-fifths received non-repayable contributions. About one-fifth of BIGS recipients benefited from both advisory services and non-repayable contributions in 2019. Almost one-fifth of BIGS recipients received other types of support, mainly as a collaborator with a main proponent on a supported project.



5 Conclusion

Governments can support R&D in the private sector through direct or indirect instruments. Direct instruments for R&D include grants, loans and procurement. Indirect instruments include R&D tax credits, R&D allowances and reductions in R&D workers’ wage taxes. In Canada, BIGS and SR&ED are the two main instruments that the government uses to stimulate the R&D expenditures of the business sector.

This paper summarizes the advantages and disadvantages of the government’s direct and indirect tools to support innovation, as highlighted in the literature. Empirical studies across OECD countries suggest that both BIGS and SR&ED can stimulate R&D expenditures and have a positive impact on the performance of recipients.

The descriptive analysis presented here compares BIGS and SR&ED support in Canada. In 2019, 22,050 enterprises received BIGS and 23,140 enterprises received SR&ED, while 6,275 received both supports. Enterprises receiving BIGS accounted for 0.79% of all enterprises, and those receiving SR&ED accounted for 0.82% of all enterprises. The highest number of recipients of both groups belonged to the revenue group of $1,000,000 to $9,999,999, followed by the revenue group of $100,000 to $999,999. Most recipients had fewer than 100 employees.

There are slight differences between the distribution of BIGS and SR&ED recipients by revenue and employment size. Total value received for both BIGS and SR&ED increased with the recipient’s revenue size, and the SR&ED value was skewed toward enterprises with higher revenue. R&D performers received more SR&ED than BIGS. This result is not surprising because SR&ED is a tax incentive for R&D spending. While more basic or applied R&D performers received SR&ED than BIGS in 2019, the total BIGS value was higher for this category.  

Further research can expand on this descriptive analysis and address questions such as:

• Which of these instruments, or their combination, stimulates R&D more effectively?
• Which instrument is more effective in terms of overall impacts on productivity and economic growth?
• What is the heterogeneity of effects across different types of firms and the interaction of different policies?

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