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Granting more bang for the buck: The heterogeneous effects of firm subsidies

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  • Cingano, Federico
  • Palomba, Filippo
  • Pinotti, Paolo
  • Rettore, Enrico

Abstract

We estimate the effects of a large program of public investment subsidies targeting Italian firms of different size and age. Investment projects were ranked by numerical scores of project quality and funded until exhaustion of funds. Exploiting this allocation mechanism as an ideal regression discontinuity design, we estimate that subsidies increased investment of marginal firms near the cutoff by 39 percent, and employment by 17 percent over a 6-year period. Smaller firms exhibit higher employment growth upon receiving the subsidy, but larger firms generate more jobs at a lower cost, and younger firms do better than older firms.

Suggested Citation

  • Cingano, Federico & Palomba, Filippo & Pinotti, Paolo & Rettore, Enrico, 2023. "Granting more bang for the buck: The heterogeneous effects of firm subsidies," Labour Economics, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:labeco:v:83:y:2023:i:c:s0927537123000787
    DOI: 10.1016/j.labeco.2023.102403
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    More about this item

    Keywords

    Public subsidies; Investment; Employment; Firm size;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • J08 - Labor and Demographic Economics - - General - - - Labor Economics Policies

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