Beyond the SUTVA: how policy evaluations change when we allow for interactions among firms

The shortage of studies on spatial spillovers of industrial policies is rather surprising considering that such policies are usually designed for generating spatial externalities. In this paper we propose a new framework that partially relaxes the SUTVA and allows contrasting the positive agglomeration effects with the negative cross-sectional substitution and the crowding-out effect. The global evaluation of the ATT and the spillover parameters shifts the spotlight from the policy effect on subsidised firms to the global effect of the industrial policy on the targeted territory. Analysing a capital subsidy policy in Italy we find a positive and large effect of the policy on subsidised firms in terms of investment, turnover, and employment; however, the employment growth is in part determined to the detriment of affected untreated firms located in the very proximity of one or more treated firms that belong to the same sector of activity.