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Direct, Spillover and Welfare Effects of Regional Firm Subsidies

Author

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  • Siegloch, Sebastian
  • Wehrhöfer, Nils
  • Etzel, Tobias

Abstract

We analyze the effects of a large place-based policy, subsidizing up to 50% of investment costs of manufacturing firms in East Germany after reunification. We show that a 1-percentage-point decrease in the subsidy rate leads to a 1% decrease in manufacturing employment. We document important spillovers for untreated sectors in treated counties, untreated counties connected via trade and local taxes, whereas we do not find spillovers on counties in the same local labor market. We show that the policy is at least as efficient as cash transfers to the unemployed, but is more effective in curbing regional inequality.

Suggested Citation

  • Siegloch, Sebastian & Wehrhöfer, Nils & Etzel, Tobias, 2021. "Direct, Spillover and Welfare Effects of Regional Firm Subsidies," CEPR Discussion Papers 16129, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:16129
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    Cited by:

    1. is not listed on IDEAS
    2. Diegmann, André & Pohlan, Laura & Weber, Andrea, 2024. "Do Politicians Affect Firm Outcomes? Evidence from Connections to the German Federal Parliament," IZA Discussion Papers 17031, Institute of Labor Economics (IZA).
    3. E. Mark Curtis & Daniel G. Garrett & Eric C. Ohrn & Kevin A. Roberts & Juan Carlos Suárez Serrato, 2021. "Capital Investment and Labor Demand," NBER Working Papers 29485, National Bureau of Economic Research, Inc.
    4. Kazakov, Aleksandr & Koetter, Michael & Titze, Mirko & Tonzer, Lena, 2024. "The effect of firm subsidies on credit markets," IWH Discussion Papers 24/2022, Halle Institute for Economic Research (IWH), revised 2024.
    5. Lang, Valentin & Redeker, Nils & Bischof, Daniel, 2022. "Place-Based Policies and Inequality Within Regions," OSF Preprints 2xmzj, Center for Open Science.
    6. Enghin Atalay & Ali Hortaçsu & Mustafa Runyun & Chad Syverson & Mehmet Fatih Ulu, 2023. "Micro- and Macroeconomic Impacts of a Place-Based Industrial Policy," NBER Working Papers 31293, National Bureau of Economic Research, Inc.
    7. repec:osf:osfxxx:2xmzj_v1 is not listed on IDEAS
    8. Max Brès & Philipp Kircher & David Koll, 2024. "Future Versus Today’s Improvements: The Trade-off of Place-Based Policies," CRC TR 224 Discussion Paper Series crctr224_2024_573, University of Bonn and University of Mannheim, Germany.
    9. Kazakov, Aleksandr & Koetter, Michael & Titze, Mirko & Tonzer, Lena, 2022. "Firm subsidies, financial intermediation, and bank risk," IWH Discussion Papers 2/2022, Halle Institute for Economic Research (IWH).
    10. Gold, Robert & Lehr, Jakob, 2024. "Paying Off Populism: How Regional Policies Affect Voting Behavior," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302441, Verein für Socialpolitik / German Economic Association.
    11. Brès, Max & Kircher, Philipp & Koll, David, 2024. "Future versus Today’s Improvements: the Trade-off of Place-based Policies," LIDAM Discussion Papers CORE 2024019, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    12. Lerche, Adrian, 2022. "Investment Tax Credits and the Response of Firms," IZA Discussion Papers 15668, Institute of Labor Economics (IZA).
    13. Bjorn Alecke & Timo Mitze, 2023. "Institutional reforms and the employment effects of spatially targeted investment grants: The case of Germany's GRW," Papers 2302.11376, arXiv.org.
    14. Aleksandr Kazakov & Michael Koetter & Mirko Titze & Lena Tonzer, 2022. "Firm subsidies, financial intermediation, and bank stability," Tinbergen Institute Discussion Papers 22-078/IV, Tinbergen Institute.

    More about this item

    Keywords

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    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand

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