The Anatomy of Subsidy Uptake: Determinants and Real Effects

Isabella Gourevich ()

No 429, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: This paper investigates self-selection into investment subsidy programs and its implications for investment additionality. I exploit Germany’s GRW program, which has high approval rates during the sample period, allowing direct observation of the self-selection margin. Using this setting, I combine descriptive analysis of application patterns with causal difference-in-differences estimation of heterogeneous treatment effects. Firms with larger market shares, greater investment intensity, and higher labor productivity are substantially more likely to apply. Yet comparing subsidized firms to matched controls in non-eligible regions with comparable economic environments, these same characteristics predict low investment additionality: high-capability applicants invest at similar levels as their control group, while firms with low prior investment intensity and market shares show large and persistent responses. A simple conceptual framework rationalizes this pattern: firms facing fewer constraints find application less costly and can invest without subsidies, generating adverse selection into the program. The findings suggest that limited average treatment effects in the industrial policy literature may partly reflect this compositional problem, and that program effectiveness requires either screening on additionality proxies or mechanisms that reduce application costs for genuinely constrained firms.

Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.ifo.de/DocDL/WP-2026-429-Gourevich-Anatomy-of-Subsidy-Uptake.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ifowps:_429

Access Statistics for this paper

More papers in ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().