The effects of a large place-based reduction of social security employers' contributions: the case of Decontribuzione Sud

We study the Decontribuzione Sud programme, introduced in 2020 to improve the competitiveness of firms operating in Southern Italy through a substantial reduction in social security contributions. Using administrative data from INPS and the National State Aid Registry, we document the characteristics of firms that joined the programme, investigate the sources of its lower-than-expected participation rate, and examine its interactions with other incentive schemes and State aid regulations. Exploiting a border discontinuity design along the boundary of the eligible Southern regions and balance sheet data for incorporated companies, we estimate the programme's impact at the firm level, both on employment and on key financial outcomes. For our benchmark sample of small and medium-sized enterprises (SMEs), we find that the reduction in labour costs raised sales and profitability on average across firms but had no measurable effect on employment or wages; the resulting profitability gains translated into improved firm liquidity rather than higher investment.