Economías internas y externas a las firmas

Government can provide appropriate framework conditions that stimulate private sector investments, including efficient financial markets and an incentive structure that adequately rewards risk-taking. Government can also take a more active role in cases of “funding gaps”, where access to financing is a major business constraint, where investors are not willing to provide funds in small amounts or where regional imbalances are too pronounced. But the demand side is also important, including the availability of promising ideas and entrepreneurs suitable for investment, which can be affected by appropriate framework conditions conducive to creativity, innovation, risk-taking and entrepreneurship. Policies can influence both the demand and supply of capital. Taxation is another important policy area that affects both supply of and demand for private risk capital. For example, many governments choose tax incentives, particularly investor tax credits, to stimulate the supply of venture capital. A reduction in capital gains tax rates can also stimulate venture capital activity. In general, one can differentiate between four different types of measures:

• Market-based, or indirect schemes, like tax incentives and personnel based schemes

• Targeted (direct measures) which form the bulk of public measures, as grants and subsidies, R&D contracts

• Guarantee schemes for loans and equity Support for VC capital

Finland abandoned R&D tax credits in1987 within the frame of a large tax reform. They were not considered an efficient tool due to problems of defining R&D activities precisely enough to avoid relabelling of R&D activities and the high administrative costs connected to the scheme. Main instrument to support R&D activities in Finland are therefore direct subsidies in the form of R&D grants and loans with favourable conditions

Advantages of indirect measures are their less distortive effects on the market since it is left to the firm to decide how to make the most of the incentives

Advantages and disadvantages of the respective schemes have been widely discussed and most countries use both types of schemes to support R&D activities.

As most of the EU-countries and the US, Finland allows the accelerated depreciation for capital expenditure on R&D infrastructure and equipment, providing companies with an incentive to invest in modern equipment and so stimulating advances in products. Both free and accelerated depreciation offer a delay in the payment of taxes rather than an actual tax reduction. Table 17 shows the most important Tax incentives by country.

Table 17. Tax incentives policies in EU and USA (source : European Comission; DG Enterprise, Innovation directorate, (2001)

Finnish Legislation contains two Acts on the use of government funds in granting government aid and business subsidies in general. These provide information on the general aims and conditions of government support. The Act on government aid 688/2001 applies to the use of government funds in government aid. It refers to the granting of subsidies, loans and other financing, interest subsidies, guarantees, and other similar benefits.

The Act on the general conditions on business subsidies 786/1997 applies to the granting of business aid directly or indirectly from government funds. Business subsidies refer to government aid and interest subsidies as well as loans, guarantees, or other financing, which involve a subsidy to the recipient.13 Section 3 describes the general objectives of a business support program: “A business support program must promote the growth potential of the economy as well as increase the efficiency of business activity. A business support program must be targeted primarily to such purposes, which remove deficiencies in the market.”

“A business support program must be composed in such a way that the distortion on competition is minimized.”

The source of all the quotes on the legislation is the database at www.finlex.fi . Important EU legislation7

7

12 Article 87 of the EC Treaty, 87(1): “1. Save as otherwise provided in this Treaty, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to

In Finland, the government has empowered the MTI to create and implement policies that provide an environment conducive to the establishment of new businesses and their growth. According to the MTI, “the objective is to improve the financing environment by measures corrective of operative deficiencies of the market and by actions promoting market operations.”

Finnvera, Tekes, TE-Centres, and FII serve as the public special financing infrastructure in the Finnish economy administered by the MTI. In addition, Sitra and various regional governmental and semi-governmental venture capital firms provide funding to Finnish firms. A good overview over business funding available from the different governmental resources can be obtained from Invest in Finland 8 .

Finnvera is clearly the largest player by the volume of financing (about 50%), followed by Tekes (about 20%) and that the relative shares of the total financing granted to SMEs by the various institutions have been quite stable (the importance is different for the biotechnology sector, though). Sitra has increased its SME financing share from 4% in 1997 to about 7% in 2001.

It is important to note that government’s direct funding to SMEs increased more rapidly during the two boom years of 1999 and 2000 than during 1998 or 2001, coinciding with increases in the availability of external finance on the market, more than 18% in real terms during the period.

For Finnvera, Sitra and FII, there is a requirement for self-sufficiency in financing. The requirement for self-sufficiency is not consistent with the idea that Finnvera and FII are supposed to rectify market failures (for a discussion see Maula and Murray, 2002 ).