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Actually France is almost doing what you describe. They do an almost full tax exemption on startup during 8 years (provided you fill a lenghty and time consuming application).
They also give easily between 50K to 100K 'no string attached' (provided you use them for R&D)
The drawback is you need to fill a lot of paperworks, meaning it's useful for startup with revenues.
These are some of the reasons why my startup decided to stay in France.
As opposed to what you say, they fund the good and the bad and let the market decides.