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Reshaping the economy? Local reallocation effects of place-based policies
Fritz, S.; van der List, C. (2025). Reshaping the economy? Local reallocation effects of place-based policies. IZA Discussion Paper, 18036. Institute of Labor Economics: Bonn. 82 pp.
Part of: IZA Discussion Paper. Institute of Labor Economics: Bonn. ISSN 2365-9793, more
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Keyword
    Productivity
Author keywords
    place-based policy, EU cohesion policy
Authors  Top 
  • Fritz, S.
  • van der List, C.
Abstract
    We study the effects of place-based policies on aggregate productivity using administrative data on projects co-financed by the EU in Italy linked to balance sheet data. We exploit quasi-experimental variation in funding for a large place-based policy stemming from measurement error in regional GDP estimates. Results show that the policy likely decreases productivity. Decompositions reveal that aggregate declines are driven by reallocation of labor to low-productivity firms. Mechanism analysis using firm-level event studies reveals that negative reallocation effects are caused by high-productivity firms taking up the funds and subsequently becoming more liquidity constrained, leading to slowdowns in employment growth.
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