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Spillover, Efficiency and Equity Effects of Regional Firm Subsidies

Author

Listed:
  • Sebastian Siegloch

    (University of Cologne, CEPR, and ZEW)

  • Nils Wehrhöfer

    (Deutsche Bundesbank and ZEW)

  • Tobias Etzel

    (Deutsche Bundesbank)

Abstract
We analyze the effects of a large place-based policy, subsidizing up to 50% of the investment costs of manufacturing firms in East Germany. We show that a one percentage-point decrease in the subsidy rate leads to a 1% decrease in manufacturing employment. We document important local spillovers for untreated construction and retail sectors, counties connected via trade, and local tax rates. There is no evidence for regional reallocation or changes in commuting and residential decisions. The cost per job amount to at most $23000. Last, we show that local subsidies are substantially more effective in curbing regional inequality than place-blind policies.

Suggested Citation

  • Sebastian Siegloch & Nils Wehrhöfer & Tobias Etzel, 2022. "Spillover, Efficiency and Equity Effects of Regional Firm Subsidies," ECONtribute Discussion Papers Series 210, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:210
    as

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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_210_2022.pdf
    File Function: First version, 2022
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    References listed on IDEAS

    as
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    Cited by:

    1. Kurt Schmidheiny & Sebastian Siegloch, 2023. "On event studies and distributed‐lags in two‐way fixed effects models: Identification, equivalence, and generalization," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(5), pages 695-713, August.
    2. Pascal Troxler, Marcus Roller, Monika Bandi Tanner, 2023. "The Investment Competition among Swiss Ski Areas," Diskussionsschriften credresearchpaper45, Universitaet Bern, Departement Volkswirtschaft - CRED.
    3. Andres, Raphaela & Niebel, Thomas & Viete, Steffen, 2024. "Do capital incentive policies support today’s digitization needs?," Telecommunications Policy, Elsevier, vol. 48(1).

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    More about this item

    Keywords

    place-based policies; employment; spillovers; administrative microdata;
    All these keywords.

    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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