Paper to be presented at the DRUID 2012 on June 19 to June 21 at CBS, Copenhagen, Denmark, TAX INCENTIVES AND DIRECT SUPPORT FOR R&D: WHAT DO FIRMS USE AND WHY? Ester Martinez-Ros Universidad Carlos III Department of Business Administration emros@emp.uc3m.es Isabel Busom Universitat Autonoma de Barcelona Economia Aplicada isabel.busom@uab.es Beatriz Corchuelo Universidad de Extremadura Analisis Economico y Gestión de Empresas bcorchue@unex.es Abstract We contribute to empirical work on public support to private R&D by jointly estimating the access by firms to R&D tax incentives and to grants and loans. We focus on the potential correlation between two sources of underinvestment in R&D and firms? access to these policy instruments. Using firm-level data we find that firms facing financial constraints and newly created firms are less likely to use R&D tax credits and more likely to apply for and obtain direct public funding. Regarding appropriability, our estimates show that large firms using legal methods to protect their intellectual property are more likely to apply for and obtain direct support, while SMEs are more likely to use tax incentives. These