Are fiscal policy incentives effective in stimulating firms' eco‐product innovation? The moderating role of dynamic capabilities

Abstract This study investigates the effectiveness of fiscal policy incentives—in particular, direct subsidies and tax credits—in stimulating eco‐product innovation among Chinese manufacturing firms. We also examine the moderating effects of dynamic capabilities. The empirical results, which are based on survey data from 265 firms in China, demonstrate that both direct subsidies and tax credits are conducive to firms' eco‐product innovation. In addition, we find that when firms' dynamic integration capabilities are strong, the facilitating effects of direct subsidies and tax credits on eco‐product innovation are likewise strong. Moreover, dynamic reconfiguration capabilities positively moderate the relationship between tax credits and eco‐product innovation. By identifying moderators that influence the effect of fiscal incentives on eco‐product innovation in heterogeneous firms, this study contributes to fiscal policy debates and realizing sustainable development.