Promoting Innovative Startups: Quasi-Experimental Evidence from Tunisia

Abstract

This paper evaluates Tunisia's “Startup Act,” a policy initiative to foster innovative firms through a “start-up” label and a bundle of incentives including reduced social security contributions, corporate tax exemptions, easier access to foreign exchange, and simplified customs procedures. Detailed data on the program's selection process allow us to identify marginal entrants and rejects, and hence limit selection on unobservables. Using a difference-in-differences strategy, the program is shown to increase survival and promote job creation. A back of the envelope cost–benefit calculation suggests that the program is cost effective.