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Spillover, Efficiency and Equity Effects of Regional Firm Subsidies

Sebastian Siegloch (), Nils Wehrhöfer () and Tobias Etzel ()
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Sebastian Siegloch: University of Cologne, CEPR, and ZEW
Nils Wehrhöfer: Deutsche Bundesbank and ZEW
Tobias Etzel: Deutsche Bundesbank

No 210, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We analyze the effects of a large place-based policy, subsidizing up to 50% of the investment costs of manufacturing firms in East Germany. We show that a one percentage-point decrease in the subsidy rate leads to a 1% decrease in manufacturing employment. We document important local spillovers for untreated construction and retail sectors, counties connected via trade, and local tax rates. There is no evidence for regional reallocation or changes in commuting and residential decisions. The cost per job amount to at most $23000. Last, we show that local subsidies are substantially more effective in curbing regional inequality than place-blind policies.

Keywords: place-based policies; employment; spillovers; administrative microdata (search for similar items in EconPapers)
JEL-codes: H24 J21 J23 (search for similar items in EconPapers)
Pages: pages
Date: 2022-11
New Economics Papers: this item is included in nep-eur, nep-geo, nep-lma and nep-ure
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