No. 1364 - Making subsidies work: rules vs. discretion

Temi di discussione (Working papers)
by Federico Cingano, Filippo Palomba, Paolo Pinotti and Enrico Rettore
March 2022
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We study the effects of a large programme of investment subsidies in Italy on firms' employment and investment strategies. The analysis leverages on detailed firm-level data and on recent econometric advancements to evaluate the effectiveness, in terms of (public) cost per new job and new investment, of specific design features of the programme: the 'Rules vs. Discretion' trade-off, and the characteristics of targeted areas.

The programme induced a substantial (33%) net increase in firms' investments. Six years after receiving the subsidy, employment was 17% higher. The cost per new job is higher in southern regions, and when the allocation criterion reflects political discretion rather than objective rules.

Published in 2025 in: Econometrica, v. 93, 3, pp. 747-778

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  1. 16 March 2022
    No. 1364 - Making subsidies work: rules vs. discretion
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