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Reshaping the Economy? Local Reallocation Effects of Place-Based Policies

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  • Sarah Fritz
  • Catherine van der List

Abstract

We study the effects of place-based policies on aggregate productivity using administrative data on projects co-financed by the EU in Italy linked to balance sheet data. We exploit quasi-experimental variation in funding for a large place-based policy stemming from measurement error in regional GDP estimates. Results show that the policy likely decreases productivity. Decompositions reveal that aggregate declines are driven by reallocation of labor to low-productivity firms. Mechanism analysis using firm-level event studies reveals that negative reallocation effects are caused by high-productivity firms taking up the funds and subsequently becoming more liquidity constrained, leading to slowdowns in employment growth.

Suggested Citation

  • Sarah Fritz & Catherine van der List, 2025. "Reshaping the Economy? Local Reallocation Effects of Place-Based Policies," CESifo Working Paper Series 12031, CESifo.
    • Handle: RePEc:ces:ceswps:_12031
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    File URL: https://www.ifo.de/DocDL/cesifo1_wp12031.pdf
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    1. repec:oup:qjecon:v:129:y:2013:i:1:p:275-331 is not listed on IDEAS
    2. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2010. "Identifying Agglomeration Spillovers: Evidence from Winners and Losers of Large Plant Openings," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 536-598, June.
    3. Enrico Moretti, 2014. "Local Economic Development, Agglomeration Economies, and the Big Push: 100 Years of Evidence from the Tennessee Valley Authority," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(1), pages 275-331.
    4. Patrick Kline, 2010. "Place Based Policies, Heterogeneity, and Agglomeration," American Economic Review, American Economic Association, vol. 100(2), pages 383-387, May.
    5. Callaway, Brantly & Sant’Anna, Pedro H.C., 2021. "Difference-in-Differences with multiple time periods," Journal of Econometrics, Elsevier, vol. 225(2), pages 200-230.
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    Cited by:

    1. Sarah Fritz & Lorenzo Incoronato & Catherine van der List, 2025. "Declining Free Lunch: State Capacity and Foregone Public Spending," CESifo Working Paper Series 12126, CESifo.

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    More about this item

    Keywords

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    JEL classification:

    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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