Working Paper: CEPR ID: DP16129
Authors: Sebastian Siegloch; Nils Wehrhöfer; Tobias Etzel
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.
Keywords: place-based policies; employment; spillovers; administrative microdata
JEL Codes: H24; J21; J23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| decrease in subsidy (H23) | increase in local business and property tax rates (H71) |
| one-percentage-point decrease in subsidy rate (H23) | decrease in manufacturing employment (O14) |
| one-percentage-point decrease in subsidy rate (H23) | decrease in employment in untreated retail sector (F66) |
| one-percentage-point decrease in subsidy rate (H23) | decrease in employment in untreated construction sector (J68) |