Making Subsidies Work: Rules vs. Discretion

Federico Cingano, Filippo Palomba (), Paolo Pinotti () and Enrico Rettore
Additional contact information
Filippo Palomba: Princeton University
Paolo Pinotti: Bocconi University

No 15172, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We estimate the employment effects of a large program of public investment subsidies that ranked applications on a score reflecting both objective criteria and local politicians' preferences. Leveraging the rationing of funds as an ideal RDD, we characterize the heterogeneity of treatment effects and cost-per-new-job across inframarginal firms, and we estimate the cost effectiveness of subsidies under factual and counterfactual allocations. Firms ranking high on objective criteria and firms preferred by local politicians generated larger employment growth on average, but the latter did so at a higher cost-per-job. We estimate that relying only on objective criteria would reduce the cost-per-job by 11%, while relying only on political discretion would increase such cost by 47%.

Keywords: public subsidies; investment; employment; political discretion; regression discontinuity (search for similar items in EconPapers)
JEL-codes: H25 J08 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2022-03
New Economics Papers: this item is included in nep-lab
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Citations: View citations in EconPapers (8)

Forthcoming - forthcoming in: Econometrica

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Related works:
Working Paper: Making Subsidies Work: Rules vs. Discretion (2022)
Working Paper: Making subsidies work: rules vs. discretion (2022)
Working Paper: Making Subsidies Work: Rules vs. Discretion (2022)
Working Paper: Making Subsidies Work: Rules vs. Discretion (2022)
Working Paper: Making Subsidies Work: Rules vs. Discretion (2022)
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