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Investment Crowding-Out: Firm-Level Evidence from Germany

Pavel Ciaian, d'Artis Kancs and Jerzy Michalek

LICOS Discussion Papers from LICOS - Centre for Institutions and Economic Performance, KU Leuven

Abstract: The main objective of the present paper is to estimate the extent to which firm investment is substituted (crowded-out) by investment support policies granted under the EU Rural Development Programme (RDP). In the empirical analyses we employ the difference-in-difference propensity score matching approach, which allows us to address several important sources of bias, such as selection bias, the simultaneity bias, and functional form misspecification, from which many previous studies suffer. Using panel data of 1,333 firms from the Schleswig-Holstein region in Germany, we find that the crowding-out effect of the RDP is close to 100%, implying that firms use public support to substitute for private investments. Furthermore, no evidence was found that, due to RDP programme support, firms would have brought forward their investments planned originally in a later period, rejecting the f inter-temporal substitution of investments.

Keywords: Investment subsidy; crowding-out; substitution effect; additionality; subsidy leverage; propensity score matching. (search for similar items in EconPapers)
JEL-codes: F1 O1 R3 R4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eur
Date: 2015
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http://feb.kuleuven.be/drc/licos/publications/dp/DP%20370%20complete.pdf

Related works:
Journal Article: Investment Crowding Out: Firm-Level Evidence from Northern Germany (2016) Downloads
Working Paper: Investment crowding-out: firm-level evidence from Germany (2015) Downloads
Working Paper: FIRM-LEVEL EVIDENCE OF DEADWEIGHT LOSS OF INVESTMENT SUPPORT POLICIES: A CASE STUDY OF DAIRY FARMS IN SCHLESWIG-HOLSTEIN (2013) Downloads
Working Paper: Firm-Level Evidence of Deadweight Loss of Investment Support Policies: A Case Study of Dairy Farms in Schleswig-Holstein (2013) Downloads
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