Some Causal Effects of an Industrial Policy
Chiara Criscuolo, Ralf Martin, Henry G. Overman, John Van Reenen
American Economic Review · 2019 · Volume 109 · Issue 1
Abstract
We exploit changes in the area-specific eligibility criteria for a program to support jobs through investment subsidies. European rules determine whether an area is eligible for subsidies, and we construct instrumental variables for area eligibility based on parameters of these rule changes. Areas eligible for higher subsidies significantly increased jobs and reduced unemployment. A ten-percentage point increase in the maximum investment subsidy stimulates a 10% increase in manufacturing employment. This effect exists solely for small firms: large companies accept subsidies without increasing activity. There are positive effects on investment and employment for incumbent firms but not Total Factor Productivity.
Keywords
Employment, Unemployment, Wages, Intergenerational Income Distribution, Aggregate Human Capital, Aggregate Labor Productivity, Capital Budgeting, Fixed Investment and Inventory Studies, Capacity, Business Taxes and Subsidies including sales and value-added (VAT), Firm Performance: Size, Diversification, and Scope, Industrial Policy, Sectoral Planning Methods, Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics
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