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Italian Subsidy System to Firms: Between Targets of Efficiency and Effectiveness

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  • Francesco Losurdo

Abstract

EU member states subsidise firms to varying degrees, with many more laws and measures supporting economic activity in the less developed countries of the union. A government report reveals that in Italy in 1999 there were 92 laws and measures regarding subsidies granted by central government and 373 by the regions. In 2000, when the transfer of administrative functions from Central Government to the regions really took effect with Decree 112/98, state subsidy measures and laws went down to 51, while regional subsidy measures went up by 18 to 391. This increase in measures is considered risky for firms - encouraging entrepreneurs to mistake market “signals†and predict lower or higher growth rates than is considered optimal. When the subsidy system is not supported by good selection process, it becomes both inefficient and ineffective. Promoting the start up of firms and temporary employment in the short term, the subsidy system fails to strengthen firms in the medium to long term, as has been shown by the following survey of 18 firms in the region of Apulia, southern Italy, subsidised by law 488/92. While increasing subsidies may be profitable and effective from a macro point of view, the problem is to reach efficiency targets from a micro point of view. Under what conditions can these different goals be achieved?

Suggested Citation

  • Francesco Losurdo, 2004. "Italian Subsidy System to Firms: Between Targets of Efficiency and Effectiveness," International Area Studies Review, Center for International Area Studies, Hankuk University of Foreign Studies, vol. 7(1), pages 117-130, March.
    • Handle: RePEc:sae:intare:v:7:y:2004:i:1:p:117-130
    DOI: 10.1177/223386590400700106
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    References listed on IDEAS

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    1. Enrico Santarelli, 2002. "Is subsidizing entry an optimal policy?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 11(1), pages 39-52, February.
    2. Michael C. Jensen, 2010. "Value Maximization, Stakeholder Theory, and the Corporate Objective Function," Journal of Applied Corporate Finance, Morgan Stanley, vol. 22(1), pages 32-42, January.
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    1. Cerqua, Augusto & Pellegrini, Guido, 2014. "Do subsidies to private capital boost firms' growth? A multiple regression discontinuity design approach," Journal of Public Economics, Elsevier, vol. 109(C), pages 114-126.
    2. Toledo, Arcelia & Hernández, José de la Paz & Griffin, Denis, 2010. "Incentives and the growth of Oaxacan subsistence businesses," Journal of Business Research, Elsevier, vol. 63(6), pages 630-638, June.

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