Spillovers and Policy Evaluation

Investment subsidies to private firms have been one of the most popular place-based policies in developed countries; however, the empirical evidence to date is still mixed and there is no general consensus on the effectiveness of such policy. Most evaluation studies have focused on the policy impact on subsidized firms, whereas the possible spillovers on other firms have been mostly overlooked. We propose a new approach that allows to consistently estimating not only the ATT, but also spillover parameters. Econometrically we adopt a Matching difference-in-differences (DID) using the recent coarsened exact matching (CEM) approach. Our application concerns the Italian Law 488 (L488). We find positive spillovers in terms of investments and negative spillovers in terms of employment, but these estimates are statistically insignificant. This demonstrates that most of the positive effects of the subsidies on the subsidized firms’ growth in terms of investments and turnover are not engendered to the detriment of the unsubsidized firms.