Design and Effectiveness of Start-up Subsidies: Evidence from a Policy Reform in Germany

Marco Caliendo and Stefan Tübbicke

No 14209, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: While a growing body of literature finds positive impacts of Start-Up Subsidies (SUS) on labor market outcomes of participants, little is known about how the design of these programs shapes their effectiveness and hence how to improve policy. As experimental variation in program design is unavailable, we exploit the 2011 reform of the current German SUS program for the unemployed which strengthened case-workers' discretionary power, increased entry requirements and reduced monetary support. We estimate the impact of the reform on the program's effectiveness using samples of participants and non-participants from before and after the reform. To control for time-constant unobserved heterogeneity as well as differential selection patterns based on observable characteristics over time, we combine Difference-in-Differences with inverse probability weighting using covariate balancing propensity scores. Holding participants' observed characteristics as well as macroeconomic conditions constant, the results suggest that the reform was successful in raising employment effects on average. As these findings may be contaminated by changes in selection patterns based on unobserved characteristics, we assess our results using simulation-based sensitivity analyses and find that our estimates are highly robust to changes in unobserved characteristics. Hence, the reform most likely had a positive impact on the effectiveness of the program, suggesting that increasing entry requirements and reducing support increased the program's impacts while reducing the cost per participant.

Keywords: difference-in-differences; policy reform; institutions; start-up subsidies (search for similar items in EconPapers)
JEL-codes: H43 J68 L26 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2021-03
New Economics Papers: this item is included in nep-ent and nep-eur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: Economic Analysis and Policy, 2021, 70, 333 - 340

Downloads: (external link)
https://docs.iza.org/dp14209.pdf (application/pdf)

Related works:
Journal Article: Design and effectiveness of start-up subsidies: Evidence from a policy reform in Germany (2021)
Working Paper: Design and Effectiveness of Start-Up Subsidies: Evidence from a Policy Reform in Germany (2021)
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:iza:izadps:dp14209

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().