Amit Batabyal (p), Seung Yoo

Petra Szávics

We study how tax policy affects the competition for venture capital by the creative class in two regions A and B. The creative class in each region produces a final good with venture capital and creative capital. Venture capital moves freely between the two regions and the representative creative class member in each region has access to an initial amount of venture capital. Each region taxes venture capital at a particular rate and the tax revenue is paid out as a transfer to the representative creative class member. In this setting, we perform five tasks. We begin by determining the first-best tax rates in the two regions. Second, we solve for the net price of venture capital and then express the objective function that is to be maximized in each region as a function of this price. Third, we compute the first-order necessary conditions that describe the optimal tax rates in the two regions and show that the sign of the tax rate depends on the net exporting position of the region. Fourth, for specific parameter values, we calculate the two tax response functions and discuss their properties. Finally, we compute the two equilibrium taxes as a function of the model’s key parameters and show that these taxes must be of opposite signs.

Petra Szávics (p), József Benedek

Julio Vicente Cateia

RIS3s were an ex-ante conditionality for financing R&I investments from ERDF during 2014-2020 under Thematic Objective (TO) 1 (Foray 2015; McCann 2015). Their main source of financing, especially in less developed regions is Cohesion Policy (Doussineau et al. 2018). Both RIS3 and Cohesion Policy have the aim to support less developed regions in reducing their disparities. However, the same regions have difficulties in efficiently and effectively absorbing funds, confronting with what has been called the 'regional innovation paradox' (Oughton et al. 2002).
Romania is one of the worst performing Member States both linked to fund absorption and innovation performance (Szabo 2017; Ranga 2018). Until recently the country applied a centralized approach towards Cohesion Policy implementation and had a centralized innovation system (Healey 2016; Ranga 2018). The deployment of the smart specialisation process at regional level connected to the use of ERDF marked the birth of incipient regional innovation systems (Ranga 2018) and was meant to support the effective and efficient implementation of Priority Axis (PA) 1 of the centralized Regional Operational Programme (ROP) 2014-2020 (Szávics 2020). The seven Romanian less developed regions have different levels of experience with smart specialisation (Ranga 2018) and the quality of the RIS3 they have designed for 2014 – 2020 differs, as well (Szávics & Benedek 2020). Considering this background and other determinants the research analyses the RIS3 implementation performance of these regions from PA 1 of ROP 2014-2020.
Findings show that there are sizeable differences in the amounts committed by each region, two of these running ahead by contracting more than 80% of funds committed. The same two regions have more experience in RIS3, better capacities related to RIS3 design and Cohesion Policy implementation, and are thicker in relevant organizations, e.g. universities. However, these differences do not fully explain the variations in the implementation performance linked to PA1 of ROP 2014-2020, nor do those that can be observed regarding innovation performance or other place-based factors that have been taken into consideration.
Results highlight the need to extend the research to other aspects. The quality of governance (Rodríguez-Pose & Di Cataldo 2015; Rodríguez-Pose & Garcilazo 2015), including the quality of cooperation between institutions responsible for implementation and private stakeholders (Radosevic 2017) and the mechanisms and rules that shape institutions and interactions (Rodríguez-Pose 2020) might be necessary to be investigated to better understand and explain the differences in the RIS3 implementation performance of these Romanian regions.