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Business Subsidies and Employment of Firms: Overall Evaluation and Regional Extension

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  • Venetoklis, Takis
  • Kangasharju, Aki

Abstract

This paper investigates the effects of business subsidies on the employment of firms in Finland, and explores possible regional differences in the effects. Employment of some 26,000 firms is followed annually between 1995-1998. We find that labour subsidies increase the firms' own employment payroll on average by 11 per cent. The marginal effect of subsidies however, is about 34 per cent. As firms pay, on average, 60 per cent of the employment payroll of a worker in a subsidised job, our results suggest that labour subsidies displace the firms' own employment expenditures. Moreover, the regional analysis indicates that the displacement effect has been milder in the Helsinki region than elsewhere, contributing to the divergence of regional economies. As an exception to the rule however, in some peripheral areas displacement has also been low. Finally, we do not find displacement or stimulation effects in the application of (i) Investment and Operation subsidies or (ii) R&D subsidies.

Suggested Citation

  • Venetoklis, Takis & Kangasharju, Aki, 2002. "Business Subsidies and Employment of Firms: Overall Evaluation and Regional Extension," Discussion Papers 268, VATT Institute for Economic Research.
    • Handle: RePEc:fer:dpaper:268
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    References listed on IDEAS

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    Cited by:

    1. Koski, Heli & Pajarinen, Mika, 2011. "Do Business Subsidies Facilitate Employment Growth?," Discussion Papers 1235, The Research Institute of the Finnish Economy.
    2. Agnieszka Komor, 2020. "The Economic Dimension of Space," European Research Studies Journal, European Research Studies Journal, vol. 0(1), pages 429-452.
    3. Venetoklis, Takis, 2002. "Public Policy Evaluation: Introduction to Quantitative Methodologies," Research Reports 90, VATT Institute for Economic Research.
    4. Venetoklis, Takis, 2004. "An Evaluation of Wage Subsidy Programs to SMEs Utilising Propensity Score Matching," Research Reports 106, VATT Institute for Economic Research.
    5. Hohendanner Christian, 2011. "Ein-Euro-Jobs und reguläre Beschäftigung / One-Euro-Jobs and Regular Employment: Eine Analyse potenzieller Substitutionseffekte mit Daten des IAB-Betriebspanels / An Analysis of Potential Substitution," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 231(2), pages 210-246, April.
    6. Heli Koski & Mika Pajarinen, 2013. "The role of business subsidies in job creation of start-ups, gazelles and incumbents," Small Business Economics, Springer, vol. 41(1), pages 195-214, June.

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