The effectiveness of investment subsidies: evidence from a regression discontinuity design

The effectiveness of investment subsidies: evidence from a regression discontinuity design This paper analyzes the effects of an investment subsidy program for small- and medium-sized enterprises in Flanders from 2004 to 2009. The subsidies were awarded according to a ranking system that favored young, growing and productive firms with a strong cash flow, granting subsidies to the highest scoring firms until the depletion of funds. The nature of this allocation system creates a sharp cutoff in granting the subsidy according to the score, allowing us to estimate the causal impact of the subsidies using a regression discontinuity design. We find a positive effect on firm-level investment, employment, output and productivity for the firms that were granted the subsidy, but only for the small firms. However, the effect is small relative to the cost of the subsidy. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Small Business Economics Springer Journals

The effectiveness of investment subsidies: evidence from a regression discontinuity design

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Publisher
Springer Journals
Copyright
Copyright © 2016 by Springer Science+Business Media New York
Subject
Business and Management; Management; Microeconomics; Entrepreneurship; Industrial Organization
ISSN
0921-898X
eISSN
1573-0913
D.O.I.
10.1007/s11187-016-9749-2
Publisher site
See Article on Publisher Site

Abstract

This paper analyzes the effects of an investment subsidy program for small- and medium-sized enterprises in Flanders from 2004 to 2009. The subsidies were awarded according to a ranking system that favored young, growing and productive firms with a strong cash flow, granting subsidies to the highest scoring firms until the depletion of funds. The nature of this allocation system creates a sharp cutoff in granting the subsidy according to the score, allowing us to estimate the causal impact of the subsidies using a regression discontinuity design. We find a positive effect on firm-level investment, employment, output and productivity for the firms that were granted the subsidy, but only for the small firms. However, the effect is small relative to the cost of the subsidy.

Journal

Small Business EconomicsSpringer Journals

Published: Jun 22, 2016

References

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