Evaluating the impact of innovation incentives: evidence from an unexpected shortage of funds

To evaluate the effect of an R&D subsidy one needs to know what the subsidized firms would have done without the incentive. This paper studies an Italian programme of subsidies for the applied development of innovations, exploiting a discontinuity in programme financing due to an unexpected shortage of public money. To identify the effect of the programme, the study implements a regression discontinuity design and compares firms that applied for funding before and after the shortage occurred. The results indicate that the programme was not effective in stimulating innovative investment.R&D, public policy, evaluation

Complementarity and substitution among industrial incentive schemes - measures targeted to SME versus measures targeted to large projects

In Europe several countries adopt different incentives to increase regional development. Some subsidies are targeted to small and medium enterprises, others to large enterprises. Even if the subsidies are targeted to specific industrial aspects, there is a substantial degree of territorial overlapping among them. Usually, every grant scheme operates in isolation, and the evaluation of the different measures does not take into account the presence of complementarity or substitution among them. On the other side, the presence of the SME and large firms in the same area can increase positive externalities and therefore it could be a reason to integrate different grant schemes. The aim of the study is to explore the impact of SME and large project grant scheme in two cases: in areas where financial assistance has been taken up by SME and large firms, and in area where only SME are subsidized. The analysis is based on the two more important measures for local development in Italy: incentives by law 488/92, mainly devoted to SME, and contratti di programma, created for large project. Using data for 784 local labour systems, we estimated the employment effect of subsidies. We control for the presence of spontaneous local growth patterns and for spatial spillovers, using the appropriate spatial models. The preliminary results show that incentives for SME have higher impacts in area where a project financed by contratti di programma is located. This suggests the presence of a relevant level of empirical complementarity between the two incentive measures.

IDENTIFICATION OF THE SPATIAL EFFECTS OF INDUSTRIAL SUBSIDIES

Several analyses show that regional capital incentives induce additional investment and growth (Schalk and Untiedt, 2000). The impact of capital subsidies on employment is more doubtful, even if many studies found that the substitution effect outweighs the output effect (Gabe and Kraybill, 2002). However, the spatial effects of capital subsidies on local development are generally neglected. In a recent paper (De Castris and Pellegrini, 2005) we show that several industrial policies have a strong spatial dimension. This study analyzes the presence of spill-overs generated by subsidised firms, disentangling the effects due to the economic links across areas. The identification strategy is based on the introduction of spatial externalities in the spatial autoregressive model (Anselin, 2003). The presence of specific spatial effects of subsidies is tested on the reduced form of the model, evaluating the implicit common factor restriction. The empirical analysis considers subsidies allocated by Law 488/1992, the main regional policy in Italy, in the Southern regions of the country in the period 1996-2001. A difference-in-difference estimator across 365 subsidised and not subsidised local labour systems is applied. The results suggest the presence of a modest spatial crowding out, where incentives attract skills and growth from neighbouring areas.

The effect of investment tax credit: Evidence from an atypical programme in Italy

This paper examines how business investment responds to investment tax credit, as enacted by ItalyÂ’s Law 388/2000. To assess whether the programme made investments possible that otherwise would not have been made, it exploits some features of the tax credit scheme, such as the fact that some Italian regions are not deemed eligible or that the amount of the bonus differs across eligible regions. Although the programme was fiscally unsustainable, and was therefore downsized well ahead of the expiry date, our findings suggest that it has been effective in stimulating investment.investment incentives, state aid

A Note on Regional Development, Space-based Policies and Tourism

A fil rouge runs through the papers presented in this Issue of the Review: the idea that the tourist development is less and less related to the distinct touristic attractions of a region and more and more to the contest where the tourist attractions lie. Clearly, not every region is suitable for tourist and recreation mission. However, policy makers have several opportunities in order to find the appropriate strategic decisions in tourism planning and to obtain sustainable and smart growth. A fil rouge runs through the papers presented in this Issue of the Review: the idea that the tourist development is less and less related to the distinct touristic attractions of a region and more and more to the contest where the tourist attractions lie. Clearly, not every region is suitable for tourist and recreation mission. However, policy makers have several opportunities in order to find the appropriate strategic decisions in tourism planning and to obtain sustainable and smart growth

Convergence among Italian Regions, 1861-2011

In 150 years, the trends in regional disparities in economic development within Italy have differed depending on whether they are gauged by longitude or by latitude. The disparities between western and eastern regions first widened and then closed; the North-South gap, by contrast, remains the main open problem in the national history of Italy. This work focuses on the underlying causes of the turning points in regional disparities since national unification in 1861. The first came in the late nineteenth and early twentieth century, with the industrialization of the so-called "industrial triangle". This was followed by the "failed new turn" during the interwar years: not only were the beginnings of convergence blocked but the North-South gap, until then still natural, inevitable, was transformed into a fracture of exceptional dimensions. The second turning point, in the twenty years after the World War, produced the first substantial, lasting convergence between southern and northern Italy, powered by rising productivity and structural change in the South. The last turning point was in the mid-1970s, when convergence was abruptly halted and a protracted period of immobility in the disparity began.Italy, regional disparities

Quantitative Evaluation Techniques for Regional Policies

In recent years, the vision of what the essential factors for growth are and therefore the role of local policies has drastically changed. The importance of aspects such as human capital, innovation, agglomeration and institutions coupled with the diversified impacts of globalization, have drawn attention to the often-neglected role of space for growth and growth policies (Barca et al. 2012). Moreover, the presence of a wide and persistent inequality in income and joblessness among local areas, regions and countries, exacerbated by the Great Recession, has suggested a more important role for spatially targeted policies. Austin et al. (2018) indicate that place-based policies should be considered in this framework, because “social problems are increasingly linked to a lack of jobs rather than a lack of income” and “subsidizing job creation may be easier at the place level than at the person level”. Barca et al. (2012) argue that “space matters and shapes the potential for development not only of territories, but, through externalities, of the individuals who live in them.” Therefore, the place-based approach is more appropriate than a space-neutral sectoral approach if the geographical context matters, in terms of social, cultural, and institutional characteristics. These considerations have led to a new spread of place-based policies, often accompanied by skepticism with respect to their results from a significant group of economists and politicians (see, for instance, Glaeser and Gottlieb 2008). Indeed, “a fundamental concern is that spatially targeted policies may simply shift economic activity from one locality to another, with little impact on the aggregate level of output” (Kline and Moretti 2014). It is therefore not surprising that in recent years there has been a particular effort in the development of techniques capable of evaluating the effectiveness of territorial policies. In this survey of place-based policy evaluation techniques, we have chosen to consider only methodologies and studies based on the counterfactual approach. The reason is that we are convinced that to identify the effects of a policy we need a causal model, and the counterfactual approach is the most widely used and convincing approach in this field. The counterfactual approach, typical of program evaluation literature, attempts to compare what actually happened with what would have happened in the absence of the treatment. As each unit can be exposed or not exposed to the treatment (see Holland 1986), the researcher is bound to compare treated units with distinct untreated units. This approach derives from the potential outcomes framework (see Rubin 1974) where pairs of outcomes are defined for the same unit given different levels of exposure to the treatment, with the researcher only observing the potential outcome corresponding to the level of treatment received. Models are developed for the pair of potential outcomes rather than solely for the observed outcome. The potential outcomes framework has a number of advantages over a framework based directly on realized outcomes: i) it allows one to define causal effects before specifying the assignment mechanism, and without making functional form or distributional assumptions; ii) it forces the researcher to think about scenarios under which each outcome could be observed, that is, to consider the kinds of experiments that could reveal the causal effects; iii) it allows formulation of probabilistic assumptions in terms of potentially observable variables, rather than in terms of unobserved components; iv) it separates the modeling of the potential outcomes from that of the assignment mechanism. Of particular importance in Rubin’s approach is the relationship between treatment assignment and the potential outcomes (Imbens and Wooldridge 2009). The simplest case for analysis is random assignment of the treatment, which ensures that there are no systematic differences between the treatment and control groups before treatment assignment. This implies that any observed differences in outcomes following the treatment can then be attributed to the treatment itself, rather than to selection bias. Therefore, it is straightforward to obtain estimators for the average effect of the treatment. Randomized experiments have been used in some areas in economics but hardly ever in regional economics. This is why in this survey we will focus on observational studies

Evaluation of the Effectiveness of Firm Subsidies in Lagging-Behind Areas: The Italian Job

Since the late 1990s, Italian scholars have produced numerous studies in the field of regional policy evaluation, especially ones that have investigated the impact of financial incentives aimed at supporting the accumulation of private capital in underdeveloped areas. The number and innovativeness of these studies make it possible to define the presence of an Italian school for evaluating regional policies. This paper testifies to the importance and methodological advances of this school, putting it at the frontier of policy evaluation analyses. The presentation of the studies moves in two directions, historical and methodological, identifying the main themes and techniques addressed in recent years: the evaluation of Law 488 and negotiated programming policies, on the one hand, the advance in policy evaluation techniques in the presence of interactions and continuous treatment, on the other. The paper does not claim to be an exhaustive review; rather, it should be considered an overview of the historical path and the future prospects of what we call «the Italian school of regional policy evaluation»

Spatial Evaluation of Public Credit Guarantees for Italian SMEs

The recent literature on the effects of the Central Guarantee Fund (CGF) shows a positive but moderate effect of CGF on subsidized firms and involved regional economies. Nevertheless, the results neglect the presence of spatial relations across firms and regions. The spillovers can be positive, on the demand side, or negative, tightening factor markets. In this paper we deal with spatial effect of CGF, considering spillovers across NUTS-3 areas in Italy. The impact is decomposed into direct effects on the NUTS- 3 areas where the guarantees are required, and indirect effects from the neighboring areas. We use different models combining a «long» DID approach and a spatial Durbin model. The results suggest that there is a positive and statistically significant, albeit modest, correlation between the use of CGF and the growth of provincial economies, controlling for sectoral differences, dimensional characteristics and several interactions. The presence of spatial spillovers marginally increases the positive effect of the CGF

Are Regional Policies Effective? An Empirical Evaluation on the Diffusion of the Effects of R&D Incentives

This paper provides evidence on the effectiveness of R&D incentives to private firms allocated by Region Umbria in the period between 2004 and 2009. The methodological innovation proposed in this paper is a novel spatial Difference-in-Difference estimator. Our approach compares distinct treatment effects on the basis of the localization in the main local market areas of Umbria (Perugia and Terni), controlling for the presence of technological spillovers due to geographical and economic proximity. The results show a positive and statistically significant impact of the subsidies, especially for innovative outputs and for small firms. The impact is higher for the firms located in less concentrated areas, suggesting the presence of significant local technological and economical spillovers due to the conjunct action of regional policies and spatial diffusion of the activities. Finally, this paper provides some empirical evidence in favour of the effectiveness of «place-based» innovation policies which constitutes the «core» of the recent smart specialization strategy