Incentive effect is crucial in ensuring a proper allocation of State resources to undertakings and thereby achieving important policy objectives. However, it is uncertain to what extent undertakings applying for subsidies actually require the subsidy to initiate the project. This article presents empirical evidence on the incentive effect of research and development subsidies to small- and medium-sized enterprises in the Northern-Netherlands, along with recommendations to increase the incentive effect of subsidies. Whereas it currently is enough for an undertaking to simply refrain from initiating a project before applying for the subsidy, I advocate for the undertaking to have a more pro-active role: it should argue why the subsidy is necessary for the initiation of the project.
Keywords: Incentive effect; General Block Exemptions Regulation; De minimis Regulation