Direct, Spillover and Welfare Effects of Regional Firm Subsidies

80 Pages Posted: 5 May 2021 Last revised: 23 Jun 2021

See all articles by Sebastian Siegloch

Sebastian Siegloch

ZEW – Leibniz Centre for European Economic Research

Nils Wehrhöfer

University of Mannheim Graduate School of Economic and Social Sciences, Students

Tobias Etzel

Deutsche Bundesbank

Multiple version iconThere are 3 versions of this paper

Date Written: 2021

Abstract

We analyze the effects of a large place-based policy, subsidizing up to 50% of investment costs of manufacturing firms in East Germany after reunification. We show that a 1-percentage-point decrease in the subsidy rate leads to a 1% decrease in manufacturing employment. We document important spillovers for untreated sectors in treated counties, untreated counties connected via trade and local taxes, whereas we do not find spillovers on counties in the same local labor market. We show that the policy is at least as efficient as cash transfers to the unemployed, but is more effective in curbing regional inequality.

Keywords: place-based policies, employment, spillovers, administrative microdata

JEL Classification: H24, J21, J23

Suggested Citation

Siegloch, Sebastian and Wehrhöfer, Nils and Etzel, Tobias, Direct, Spillover and Welfare Effects of Regional Firm Subsidies (2021). ZEW - Centre for European Economic Research Discussion Paper No. 21-038, Available at SSRN: https://ssrn.com/abstract=3839263 or http://dx.doi.org/10.2139/ssrn.3839263

Sebastian Siegloch (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Nils Wehrhöfer

University of Mannheim Graduate School of Economic and Social Sciences, Students ( email )

Mannheim
Germany

Tobias Etzel

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
46
Abstract Views
182
PlumX Metrics