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The Impact of Capital Subsidies: New Estimations under Continuous Treatment

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  • Valentina Adorno

    ()
    (Department of Statistics, University of Bologna)

  • Cristina Bernini

    ()
    (Department of Statistics, University of Bologna)

  • Guido Pellegrini

    ()
    (Department of Statistics, University of Bologna)

Abstract

Most of the relevant literature on the evaluation of the impact of public subsidies to private firms deals with the estimation of causal effects of a binary treatment. However, several policies allow for different levels of subsidies, depending on the investment project, the firm dimension, the region and also on the firms’ choice. The aim of the paper is to evaluate the causal effect of a policy intervention in the case of a continuous treatment, exploring the impact of differences in treatment level on policy outcome. As an empirical application, we estimated the impact of subsidies allocated by L. 488/1992, the main regional policy in Italy, in the southern regions of the country in the period 1996-2000. We compare two estimation methods: a parametric method, based on a more traditional DID estimator adapted to the continuous treatment case, and a non parametric estimator, based on a novel two-step matching method developed in our recent work (Adorno, Bernini and Pellegrini, 2007a). On average, our results support the conclusions derived from methods based on the binary treatment: subsidies have a positive and often statistically significant effect on employment, fixed assets and turnover. However, the strong heterogeneity of the treatment outcome with respect to different levels of treatment is highlighted. We find that higher the level of incentive, higher the policy effect until a certain point, from which the marginal impact decreases. The results are robust to changes in the estimation method.

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Bibliographic Info

Article provided by GDE (Giornale degli Economisti e Annali di Economia), Bocconi University in its journal Giornale degli Economisti e Annali di Economia.

Volume (Year): 66 (2007)
Issue (Month): 1 (March)
Pages: 67-92

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Handle: RePEc:gde:journl:gde_v66_n1_p67-92

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Related research

Keywords: continuous treatment; matching estimator; industrial policy evaluation; subsidies to capital accumulation;

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References

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  1. Richard Blundell & Monica Costa Dias, 2002. "Alternative approaches to evaluation in empirical microeconomics," CeMMAP working papers CWP10/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  2. Susan Athey & Guido Imbens, 2003. "Identification and Inference in Nonlinear Difference-in-Differences Models," Levine's Working Paper Archive 506439000000000079, David K. Levine.
  3. Richard Blundell & Monica Costa Dias, 2000. "Evaluation methods for non-experimental data," Fiscal Studies, Institute for Fiscal Studies, vol. 21(4), pages 427-468, January.
  4. Roper, Stephen & Hewitt-Dundas, Nola, 2001. "Grant Assistance and Small Firm Development in Northern Ireland and the Republic of Ireland," Scottish Journal of Political Economy, Scottish Economic Society, vol. 48(1), pages 99-117, February.
  5. Sascha O. Becker & Andrea Ichino, 2002. "Estimation of average treatment effects based on propensity scores," Stata Journal, StataCorp LP, vol. 2(4), pages 358-377, November.
  6. Lu B. & Zanutto E. & Hornik R. & Rosenbaum P.R., 2001. "Matching With Doses in an Observational Study of a Media Campaign Against Drug Abuse," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 1245-1253, December.
  7. Raffaello Bronzini & Guido De Blasio, 2005. "Evaluating the impact of investment incentives - the case of the Italian Law 488," ERSA conference papers ersa05p649, European Regional Science Association.
  8. Jere R. Behrman & Yingmei Cheng & Petra E. Todd, 2004. "Evaluating Preschool Programs When Length of Exposure to the Program Varies: A Nonparametric Approach," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 108-132, February.
  9. Kosuke Imai & David A. van Dyk, 2004. "Causal Inference With General Treatment Regimes: Generalizing the Propensity Score," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 854-866, January.
  10. repec:rie:review:v:8:y:2003:i:2:n:5 is not listed on IDEAS
  11. Brown, Marilyn A. & Curlee, T. Randall & Elliott, Steven R., 1995. "Evaluating technology innovation programs: the use of comparison groups to identify impacts," Research Policy, Elsevier, vol. 24(5), pages 669-684, September.
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Citations

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Cited by:
  1. Affuso, Antonio, 2010. "Do public subsidies reduce credit rationing? A matching approach," MPRA Paper 24874, University Library of Munich, Germany, revised 02 Sep 2010.
  2. Michela Bia & Alessandra Mattei, 2012. "Assessing the effect of the amount of financial aids to Piedmont firms using the generalized propensity score," Statistical Methods and Applications, Springer, vol. 21(4), pages 485-516, November.
  3. Raffaello Bronzini & Eleonora Iachini, 2012. "Are Incentives For R&D Effective? Evidence From A Regression Discontinuity Approach," ERSA conference papers ersa12p848, European Regional Science Association.
  4. Cesur, Resul & Tekin, Erdal & Ulker, Aydogan, 2013. "Air Pollution and Infant Mortality: Evidence from the Expansion of Natural Gas Infrastructure," IZA Discussion Papers 7179, Institute for the Study of Labor (IZA).
  5. Guido Pellegrini & Augusto Cerqua, 2011. "Are the subsidies to private capital useful? A Multiple Regression Discontinuity Design Approach1," ERSA conference papers ersa11p1323, European Regional Science Association.
  6. Michela Bia & Roberto Leombruni & Pierre-Jean Messe, 2009. "Young in-Old out: a new evaluation based on Generalized Propensity Score," LABORatorio R. Revelli Working Papers Series 93, LABORatorio R. Revelli, Centre for Employment Studies.
  7. Affuso, Antonio, 2011. "A propensity score analysis of public incentives: The Italian case," MPRA Paper 36698, University Library of Munich, Germany.
  8. Alessandro Cusimano & Fabio Mazzola, 2013. "Ex-post evaluation of Territorial Integrated Projects in Italy: an empirical analysis at firm level," ERSA conference papers ersa13p1331, European Regional Science Association.
  9. Augusto Cerqua & Guido Pellegrini, 2014. "Beyond the SUTVA: how policy evaluations change when we allow for interactions among firms," Working Papers 2/14, Sapienza University of Rome, DISS.
  10. Cerqua, Augusto & Pellegrini, Guido, 2014. "Do subsidies to private capital boost firms' growth? A multiple regression discontinuity design approach," Journal of Public Economics, Elsevier, vol. 109(C), pages 114-126.
  11. Gustavo Varela Alvarenga & Donald Matthew Pianto & Bruno César Araújo, 2014. "Impactsof The Brazilian Science And Technology Sector Funds On Industrialfirms’ R&D Inputs And Outputs: New Perspectives Using Adose-Response Function," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 158, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].

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