Abstract

There is increasing interest in developing countries in granting tax incentives in order to encourage private investment in research, development, and innovation (R&D+i). However, evidence on the effectiveness of such schemes in achieving policy goals in weak innovation systems contexts is still very scarce. This paper aims at narrowing this knowledge gap by focusing on the effects of a tax credit scheme for promoting firm-level innovation investment in Argentina. The analysis applies dynamic panel data techniques to a novel dataset, merging several waves of the National Innovation Survey collected by the National Institute of Statistics and Censuses. The results suggest that the elasticity of R&D+i investment to its user cost of capital is a greater than 1 in absolute terms, which implies that the intervention has been effective in increasing firms’ innovation efforts. However, effects vary depending on the type of innovation investment being subsidized, industrial sector, and size of the firm. Moreover, when innovation investment is divided into innovation related capital goods expenditures and only R&D, the results suggest that the absolute value of the elasticity for the R&D component of the innovation investment is less than 1. These heterogeneous effects should be exploited for further policy design.