IDEAS home Printed from https://ideas.repec.org/p/wiw/wiwrsa/ersa05p649.html
   My bibliography  Save this paper

Evaluating the impact of investment incentives - the case of the Italian Law 488

Author

Listed:
  • Raffaello Bronzini

    ()

  • Guido De Blasio

    ()

Abstract

Since the second half of the Â’90s, investment incentives channelled through the Law 488 have represented the main policy instrument for reducing territorial disparities in Italy. From 1996 to 2003, the total amount of funds distributed to industrial firms has accounted for 16 billion of euro, involving 27,846 financed projects, mainly in southern regions. The Law 488 allows firms willing to invest in lagged areas to receive a public subsidy that covers a fraction of the investment outlays. The incentives are assigned through competitive auctions according to pre-determined specific criteria, such as the proportion of own funds invested in the project; the number of jobs involved and the value of assistance sought as a proportion of the maximum award rate applicable to the project. This paper aims at evaluating the impact of Law 488 subsidies on firmsÂ’ investment by using the econometric tools of program evaluation. We employ a unique dataset provided by the Italian Ministry of Industry, which records all the firms that have requested the grants (either subsidised or non subsidised firms), and match these data with the balance sheet information from the Company Account Data Service for the period 1994-2001. Our matched dataset allows us to evaluate whether the Law 488 made it possible investments that otherwise would not have been done. In doing so, we tackle two issues that have plagued the empirical analyses so far. First, we analyse the extent to which investments have been triggered by intertemporal substitution. In expectation of the introduction of the Law 488 firms could have postponed (anticipated) investment projects originally planned for the pre (post) Law 488 period. Second, we study the role of cross-sectional substitution. Subsidised firms could have taken some of the investment opportunities that non subsidised firm would have got in absence of the incentives.

Suggested Citation

  • Raffaello Bronzini & Guido De Blasio, 2005. "Evaluating the impact of investment incentives - the case of the Italian Law 488," ERSA conference papers ersa05p649, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa05p649
    as

    Download full text from publisher

    File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa05/papers/649.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Auerbach, Alan J & Hines, James R, Jr, 1988. "Investment Tax Incentives and Frequent Tax Reforms," American Economic Review, American Economic Association, vol. 78(2), pages 211-216, May.
    2. Todd M. Gabe & David S. Kraybill, 2002. "The Effect of State Economic Development Incentives on Employment Growth of Establishments," Journal of Regional Science, Wiley Blackwell, vol. 42(4), pages 703-730.
    3. Lamont, Owen, 1997. " Cash Flow and Investment: Evidence from Internal Capital Markets," Journal of Finance, American Finance Association, vol. 52(1), pages 83-109, March.
    4. Richard Harris & Mary Trainor, 2005. "Capital Subsidies and their Impact on Total Factor Productivity: Firm-Level Evidence from Northern Ireland," Journal of Regional Science, Wiley Blackwell, vol. 45(1), pages 49-74.
    5. Albert Alesina & Stephan Danninger & Massimo Rostagno, 2001. "Redistribution Through Public Employment: The Case of Italy," IMF Staff Papers, Palgrave Macmillan, vol. 48(3), pages 1-2.
    6. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2004. "Evaluating the Employment Impact of a Mandatory Job Search Program," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 569-606, June.
    7. Tor Jakob Klette & Jarle Møen & Zvi Griliches, 1999. "Do Subsidies to Commercial R&D Reduce Market Failures? Microeconomic Evaluation Studies," NBER Working Papers 6947, National Bureau of Economic Research, Inc.
    8. Banerjee, Abhijit & Duflo, Esther, 2004. "Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program," CEPR Discussion Papers 4681, C.E.P.R. Discussion Papers.
    9. Brown, Marilyn A. & Curlee, T. Randall & Elliott, Steven R., 1995. "Evaluating technology innovation programs: the use of comparison groups to identify impacts," Research Policy, Elsevier, vol. 24(5), pages 669-684, September.
    10. Lee, Jong-Wha, 1996. "Government Interventions and Productivity Growth," Journal of Economic Growth, Springer, vol. 1(3), pages 391-414, September.
    11. Jerome Adda & Russell Cooper, 2000. "Balladurette and Juppette: A Discrete Analysis of Scrapping Subsidies," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 778-806, August.
    12. Abel, Andrew B., 1982. "Dynamic effects of permanent and temporary tax policies in a q model of investment," Journal of Monetary Economics, Elsevier, vol. 9(3), pages 353-373.
    13. Austan Goolsbee, 1998. "Investment Tax Incentives, Prices, and the Supply of Capital Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 113(1), pages 121-148.
    14. Joshua D. Angrist & Victor Lavy, 1999. "Using Maimonides' Rule to Estimate the Effect of Class Size on Scholastic Achievement," The Quarterly Journal of Economics, Oxford University Press, vol. 114(2), pages 533-575.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lage de Sousa, Philip & Ottaviano, Gianmarco I. P., 2014. "Relaxing credit constraints in emerging economies: the impact of public loans on the performance of Brazilian manufacturers," LSE Research Online Documents on Economics 60529, London School of Economics and Political Science, LSE Library.
    2. Filipe Lage De Sousa & Gianmarco Ottaviano, 2014. "Relaxing Credit Constraints In Emergingeconomies: The Impact Of Public Loans On The Performance Of Brazilianfirms," Anais do XL Encontro Nacional de Economia [Proceedings of the 40th Brazilian Economics Meeting] 128, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. Guido Pellegrini & Augusto Cerqua, 2011. "Are the subsidies to private capital useful? A Multiple Regression Discontinuity Design Approach1," ERSA conference papers ersa11p1323, European Regional Science Association.
    4. Valentina Adorno & Cristina Bernini & Guido Pellegrini, 2007. "The Impact of Capital Subsidies: New Estimations under Continuous Treatment," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 66(1), pages 67-92, March.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wiw:wiwrsa:ersa05p649. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Gunther Maier). General contact details of provider: http://www.ersa.org .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.