Do Incentives Matter for Growth in Italy?

This paper analyzes the role of incentives in stimulating growth in a microfounded model with three sectors. Incentives take two forms: patents, which stimulate innovation, and incentives for enrolling in post-secondary education. Inventive activity and the decision to enroll in post-secondary education are considered as investment decisions. Incentives that either increase the benefits of these activities or reduce their costs affect private decision-making, stimulating investment and, consequently, economic growth. Empirical investigation of the model for Italy demonstrates that incentives may have real effects. A new database covering more than 400 patents filed by public research organizations shows that invention responds to changes in the intellectual property rights regime. And enrolment rates in postsecondary education have trended upward since the enactment of three policy measures designed to increase the return on an indivdual’s investment in university training. The conclusion is that incentives do in fact matter for growth in Italy.