Subsidizing Start-Ups: Policy Targeting and Policy Effectiveness
AbstractStart-up subsidies are a frequently employed policy instrument, the use of which is justified by alleged market failure resulting from positive external effects and capital market imperfections. This article investigates whether the allocation of subsidies reflects a policy focus on addressing these market failure occurrences. However, using survey data from the East German state of Thuringia, logistic regressions reveal a rather random subsidization of start-ups. Furthermore, propensity score matching suggests that subsidized start-ups would have survived and thrived in any case, an indication of deadweight losses of start-up subsidies. The analysis points to serious information problems arising when subsidies should be allocated to remedy market failure. Making the situation even more problematic is that failure to precisely target start-up subsidies is likely to result in market distortions and ineffectiveness.
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Bibliographic InfoPaper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2009-083.
Date of creation: 13 Oct 2009
Date of revision:
Start-ups; Subsidies; Subsidy allocation; Policy evaluation;
Find related papers by JEL classification:
- L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- H59 - Public Economics - - National Government Expenditures and Related Policies - - - Other
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