Assessing the Economic Impact of Public Industrial Policies: An Empirical Investigation on Subsidies

Abstract

Empirical literature findings do not provide a clear-cut interpretation of the effects of public aid on firms performances. We contribute to this literature analysing the effects of public regional subsidies on investment using a new dataset covering all the firms in the Italian province of Trento, along with a record of public aid granted in the last 15 years. We find permanent positive effects of aid on firms' size, but no effect is found on factor substitution, nor on technical change. Moreover, subsidies do not improve either profitability or productivity. These results help better define the scope for local aid.

Keywords: Regional policy, public subsidies, propensity score matching

JEL Classification: R11, R58, C31