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Impact of Business Subsidies on Growth of Firms - Preliminary Evidence from Finnish Panel Data

Takis Venetoklis ()

No 220, Discussion Papers from VATT Institute for Economic Research

Abstract: This study examines the impact of business subsidies on beneficiary and non-beneficiary firms during a short three year period, from 1995 to 1997. The indicator measuring the impact of subsidies on these firms is their Value Added growth over the three-year period. The study is based on financial data of firms and data of subsidies given to firms found in the databases of the Finnish Taxation Authorities. In the data analysed the aid is distributed through four different organisations: the Ministry of Trade and Industry (KTM), the National Technology Agency (TEKES), the Ministry of Labour (TM) and the Ministry of Agriculture (MMM). A very large amount of records (approx. 36 000) with firm-specific data is utilised. Some of the firms (35 percent) had received subsidies during the period examined and some had not. Several multivariate models are built at aggregate and disaggregate level. From the analysis it appears that there is a positive relationship between subsidies and Value Added growth. However, the relationship is sensitive to the choice of variables in the models. Only in some of the models do the subsidies turn out statistically significant. And even then, the magnitude of the subsidies? influence to the firms? Value Added growth is relatively small considering the amounts of subsidies spent. Notwithstanding certain limitations in the study, the low estimated impact raises questions on the effectiveness of the business subsidy policies currently in force.

Keywords: Value Added Growth; Business Subsidies; Impact; Economic growth; Taloudellinen kasvu; Taxation and Social Transfers; Julkisen talouden rahoitus ja tulonsiirrot; H200 - Taxation; Subsidies; and Revenue: General; M200 - Business Economics: General; O100 - Economic Development: General (search for similar items in EconPapers)
Date: 2000
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