Economics Seminar Economics (ESE) - 2023/2024

Interviene: Paolo Pinotti, Università Bocconi 

Titolo: Making Subsidies Work: Rules vs. Discretion

Abstract: We estimate the employment effects of a large program of public investment subsidies to private firms that ranked applicants on a score reflecting both objective rules and local politicians' discretion. Leveraging the rationing of funds as an ideal RDD, we characterize the heterogeneity of treatment effects and cost-per-new-job across inframarginal firms, and we estimate the cost effectiveness of subsidies under factual and counterfactual allocations. Firms ranking high on objective rules and firms preferred by local politicians generated larger employment growth on average, but the latter did so at a higher cost-per-job. We estimate that relying only on objective criteria would reduce the cost-per-job by 11%, while relying only on political discretion would increase such cost by 42%