This paper examines how employee earnings respond to a one-time cash flow shock in the form of a government R&D grant. In a regression discontinuity design, we find that the grant immediately increases average annual employee-level earnings by 2.9%. This benefit accrues only to incumbent employees and rises with job tenure. The grant also affects firm growth, but the initial wage patterns do not appear to reflect growth or productivity. Instead, the evidence supports implicit equity financing within the firm, where employees initially accept lower wages from financially constrained firms and earn more when the firm has ability to pay.

This article studies how federal funding affects the innovation outputs of university researchers. We link person-level research grants from 22 universities to patents, publications, and career outcomes from the U.S. Census Bureau. We focus on the effects of large, idiosyncratic, and temporary cuts to federal funding in a researcher’s preexisting narrow field of study. Using an event study design, we document that these negative federal funding shocks reduce high-tech entrepreneurship and publications but increase patenting. The lost publications tend to be higher quality and more basic, whereas the additional patents tend to be lower quality, less general, and more often privately assigned. These federal funding cuts lead to an increase in private funding, which partially compensates for the decline in federal funding. Together with evidence from industry-university contracts, the results suggest that federal funding cuts shift university research funding from federal to private sources and lead to innovation outputs that are less openly accessible and more often appropriated by corporate funders.

Angel investor tax credits are used globally to spur high‐growth entrepreneurship. Exploiting their staggered implementation in 31 U.S. states, we find that they increase angel investment yet have no significant impact on entrepreneurial activity. Two mechanisms explain these results: crowding out of alternative financing and low sensitivity of professional investors to tax credits. With a large‐scale survey and a stylized model, we show that low responsiveness among professional angels may reflect the fat‐tailed return distributions that characterize high‐growth startups. The results contrast with evidence that direct subsidies to firms have positive effects, raising concerns about promoting entrepreneurship with investor subsidies.