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Evaluating the impact of public subsidies on a firm's performance: A quasi-experimental approach

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Author Info
Néstor Duch () (Grup en Federalisme Fiscal i Economia Regional(Institut de Recerca en Economia - IEB), Departament d'Econometria, Estadística i Economia Espanyola, Universitat de Barcelona)
Daniel Montolio () (Grup en Federalisme Fiscal i Economia Regional(Institut de Recerca en Economia - IEB), Departament d'Economia Política i Hisenda Pública, Universitat de Barcelona)
Mauro Mediavilla () (Grup en Federalisme Fiscal i Economia Regional(Institut de Recerca en Economia - IEB), Departament d'Economia Política i Hisenda Pública, Universitat de Barcelona)

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Abstract

Many regional governments in developed countries design programs to improve the competitiveness of local firms. In this paper, we evaluate the effectiveness of public programs whose aim is to enhance the performance of firms located in Catalonia (Spain). We compare the performance of publicly subsidised companies (treated) with that of similar, but unsubsidised companies (non-treated). We use the Propensity Score Matching (PSM) methodology to construct a control group which, with respect to its observable characteristics, is as similar as possible to the treated group, and that allows us to identify firms which retain the same propensity to receive public subsidies. Once a valid comparison group has been established, we compare the respective performance of each firm. As a result, we find that recipient firms, on average, change their business practices, improve their performance, and increase their value added as a direct result of public subsidy programs.

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Publisher Info
Paper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number XREAP2007-07.

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Length: 34 pages
Date of creation: Jul 2007
Date of revision: Jul 2007
Handle: RePEc:xrp:wpaper:xreap2007-07

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Postal: Espai de Recerca en Economia, Facultat de Ci�ncies Econ�miques i Empresarials, Universitat de Barcelona, c/ Tinent Coronel Valenzuela, 1-11, 08034 Barcelona
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Related research
Keywords: Public policy; evaluation studies; firm performance; propensity Score Matching.;

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Find related papers by JEL classification:
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
L53 - Industrial Organization - - Regulation and Industrial Policy - - - Enterprise Policy

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February. [Downloadable!] (restricted)
    Other versions:
  2. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Human Capital and Productivity Project Working Papers 20035, University of Western Ontario, CIBC Human Capital and Productivity Project. [Downloadable!]
    Other versions:
  3. Roberto Gabriele & Marco Zamarian & Enrico Zaninotto, 2006. "Assessing the economic impact of public industrial policies: an empirical investigation on subsidies," Quaderni DISA 111, Department of Computer and Management Sciences, University of Trento, Italy.
    Other versions:
  4. Helena Lenihan, 2004. "Evaluating Irish industrial policy in terms of deadweight and displacement: a quantitative methodological approach," Applied Economics, Taylor and Francis Journals, vol. 36(3), pages 229-252, February. [Downloadable!] (restricted)
  5. Arvanitis, Spyros & Hollenstein, Heinz & Lenz, Stephan, 2002. " The Effectiveness of Government Promotion of Advanced Manufacturing Technologies (AMT): An Economic Analysis Based on Swiss Micro Data," Small Business Economics, Springer, vol. 19(4), pages 321-40, December. [Downloadable!] (restricted)
  6. Xulia González & Jordi Jaumandreu & Consuelo Pazo, 2005. "Barriers to Innovation and Subsidy Effectiveness," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 930-949, Winter.
  7. Aerts, Kris & Czarnitzki, Dirk, 2004. "Using Innovation Survey Data to Evaluate R&D Policy : The Case of Belgium," ZEW Discussion Papers 04-55, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
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  9. Almus, Matthias & Czarnitzki, Dirk, 2003. "The Effects of Public R&D Subsidies on Firms' Innovation Activities: The Case of Eastern Germany," Journal of Business & Economic Statistics, American Statistical Association, vol. 21(2), pages 226-36, April.
  10. Scott J. Wallsten, 2000. "The Effects of Government-Industry R&D Programs on Private R&D: The Case of the Small Business Innovation Research Program," RAND Journal of Economics, The RAND Corporation, vol. 31(1), pages 82-100, Spring.
  11. Roper, Stephen & Hewitt-Dundas, Nola & Love, James H., 2004. "An ex ante evaluation framework for the regional benefits of publicly supported R&D projects," Research Policy, Elsevier, vol. 33(3), pages 487-509, April. [Downloadable!] (restricted)
  12. Ballesteros, Juan Acosta & Rico, Aurelia Modrego, 2001. "Public financing of cooperative R&D projects in Spain: the Concerted Projects under the National R&D Plan," Research Policy, Elsevier, vol. 30(4), pages 625-641, April. [Downloadable!] (restricted)
  13. Rajeev H. Dehejia & Sadek Wahba, 1998. "Causal Effects in Non-Experimental Studies: Re-Evaluating the Evaluation of Training Programs," NBER Working Papers 6586, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. 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. [Downloadable!]
  15. Lerner, Josh, 1999. "The Government as Venture Capitalist: The Long-Run Impact of the SBIR Program," Journal of Business, University of Chicago Press, vol. 72(3), pages 285-318, July. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Néstor Duch-Brown & José García-Quevedo & Daniel Montolio, 2008. "Assessing the assignation of public subsidies: Do the experts choose the most efficient R&D projects?," Working Papers 2008/5, Institut d'Economia de Barcelona (IEB). [Downloadable!]
    Other versions:
  2. Anna Matas & José-Luís Raymond & José-Luís Roig, 2008. "Car ownership and access to jobs in Spain," Working Papers XREAP2008-3, Xarxa de Referència en Economia Aplicada (XREAP), revised Apr 2008. [Downloadable!]
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