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CEP/STICERD Applications Seminars & CEP/STICERD Applications Seminars

Public Subsidies, Political Discretion, and Policy Effectiveness

Paolo Pinotti (Bocconi)

Monday 08 November 2021 16:00 - 17:30

Many of our seminars and public events this year will continue as in person or as hybrid (online and in person) events. Please check our website listings and Twitter feed @STICERD_LSE for updates.

Unless otherwise specified, in-person seminars are open to the public.

Those unable to join the seminars in-person are welcome to participate via zoom if the event is hybrid.


About this event

We estimate the effects of a large program of public investment subsidies to private firms in Italy. Investment projects presented by firms were ranked by numerical scores reflecting both objective measures of project quality and the discretion of local politicians, and they were funded according to such ranking until exhaustion of available funds. We estimate that subsidies increased investment of marginal firms near the cutoff by 39 percent, and employment by 17 percent over a 6-year period. Building on recent advancements in the econometrics of regression discontinuity designs, we characterize treatment effect heterogeneity and cost-effectiveness of subsidies across inframarginal firms. Smaller firms exhibit higher employment growth upon receiving the subsidy, but larger firms generate more jobs at a lower cost, and younger firms exhibit do better than older firms. Using the estimated distribution of treatment effects, we compute the effects of the policy under different allocation criteria. Eliminating political discretion would reduce the cost per job by 10 percent, and adopting an optimal criterion based on a set of observable firm characteristics would reduce the cost by over one third relative to the actual policy.

Applications (Applied Micro) Seminars are held on Mondays in term time at 12:00-13:30 in 3.05 in person.

Seminar organiser: Jörn-Steffen Pischke

For further information please contact Lubala Chibwe, either by email: l.chibwe@lse.ac.uk.

Please use this link to subscribe or unsubscribe to our mailing list (applications).

Applications (Applied Micro) Seminars are held on Mondays in term time at 12:00-13:30 in 3.05 in person.

Seminar organiser: Jörn-Steffen Pischke

For further information please contact Lubala Chibwe, either by email: l.chibwe@lse.ac.uk.

Please use this link to subscribe or unsubscribe to our mailing list (applications).