New Research Reveals Unintended Consequences of Capital Incentives on Tech Adoption

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In a new paper from CBPP Senior Policy Scholar Timothy DeStefano and colleagues, Do Capital Incentives Distort Technology Diffusion? Evidence on Cloud, Big Data, and AI, featured in VOXEU, DeStefano and his co-authors delve into the unintended consequences of traditional capital incentives on technology adoption. These policies, designed to stimulate investment in tangible assets, can inadvertently hinder the diffusion of cutting-edge technologies like cloud computing, AI, and big data analytics.

The research, focusing on the UK’s Annual Investment Allowance (AIA), reveals that such incentives, while successful in boosting traditional, physical IT investments, can slow down the adoption of cloud services–a 17% reduction in cloud computing adoption among firms taking the incentive in this case. The study reveals that AIA also slowed the uptake of  big data analytics by 18% and AI by 3%, as these technologies often rely on cloud infrastructure. DeStefano’s findings reveal that similar well-intentioned policies may stifle the development of more advanced technologies that rely heavily on cloud infrastructure.

DeStefano and his co-authors highlight the need for a nuanced approach to technology policy. As policymakers strive to promote innovation, it’s crucial to consider the potential trade-offs between short-term gains and long-term technological advancement. By understanding the complex interplay between capital incentives and technology diffusion, policymakers can make informed decisions to foster a thriving digital economy.”

Read the full article on VOXEU here. 

Written by Cindy Reyes, CBPP Student Fellow