Do local subsidies to firms create jobs? Counterfactual evaluation of an Italian regional experience by Giuseppe Porro and Valentina Salis

ABSTRACT

The paper evaluates the impact on employment dynamics of four programs implemented in Lombardy (Italy) and providing financial incentives to firms on the period 2008-2013.
A counterfactual analysis is performed, via coarsened exact matching, that allows for multi treatment cases, distinguishing the effects of single programs and taking into account different possible levels of incentives.
Linear estimates suggest that the programs have a positive effect on short-run employment growth only when the amount of financial incentives is sufficiently high; moreover, the efficacy seems to increase when the incentives take the form of interest-rate subsidies, instead of capital grants. A non-linear representation of the policy effects, on the contrary, shows that the result of public intervention is, on the whole, negative or non-significant, and that the positive estimates in the linear models are due to small groups of outliers, which received very high subsidies. Thanks to this new methodological tool, the results of the vast majority of the literature about the impact of public subsidies on job
creation are confirmed and strengthened. Data allow for a short-run analysis only, but the results cast some doubts on the effectiveness of the programs also in a medium-long run perspective.

GIUSEPPE PORRO is Associate Professor of Economic Policy, Department of Law,
Economics and Culture, University of Insubria, Como.
giuseppe.porro@uninsubria.it

VALENTINA SALIS is Researcher at CERTeT, Università “L. Bocconi”, Milan.
valentina.salis@unibocconi.it