Working Paper: NBER ID: w31293
Authors: Enghin Atalay; Ali Hortasu; Mustafa Runyun; Chad Syverson; Mehmet Fatih Ulu
Abstract: We investigate the impact of a set of place-based subsidies introduced in Turkey in 2012. Using firm-level balance-sheet data along with data on the domestic production network, we first assess the policy’s direct and indirect impacts. We find an increase in economic activity in industry-province pairs that were the focus of the subsidy program, and positive spillovers to the suppliers and customers of subsidized firms. With the aid of a dynamic multi-region, multi-industry general equilibrium model, we then assess the program’s impacts. Based on the calibrated model we find that, in the long run, the subsidy program is modestly successful in reducing inequality between the relatively under-developed and more prosperous portions of the country. These modest longer-term effects are due to the ability of households to migrate in response to the subsidy program and to input-output linkages that traverse subsidy regions within Turkey.
Keywords: place-based subsidies; economic activity; spillovers; regional inequality; Turkey
JEL Codes: D20; E2; E6; H5; L5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Subsidy program in Turkey (H20) | Increased economic activity among directly impacted firms (F69) |
| 5 percentage point increase in the investment tax credit subsidy rate (H20) | Increased revenues among directly impacted firms (F69) |
| 5 percentage point increase in the investment tax credit subsidy rate (H20) | Increased employment among directly impacted firms (J68) |
| 5 percentage point increase in the investment tax credit subsidy rate (H20) | Decreased marginal costs among directly impacted firms (D21) |
| Subsidy program in Turkey (H20) | Spillover effects through production network (F12) |
| 5 percentage point increase in fraction of subsidized suppliers and customers (H29) | Increased revenues (H27) |
| 5 percentage point increase in fraction of subsidized suppliers and customers (H29) | Increased employment (J68) |
| Subsidy program in Turkey (H20) | Long-term effects on regional wage inequality (F66) |
| Migration flows and trade linkages (O24) | Moderating impact on subsidy program's effect on regional wage inequality (H23) |