Investment Subsidies Effectiveness: Evidence from a Regional Program

I provide novel empirical evidence on the effectiveness of public funding in lagging behind areas by investigating the effect of a subsidy program implemented in the Campania region (South Italy) and targeting SMEs. By relying on a Difference-in-Differences approach, my estimates demonstrate that the regional program produces a sizable increase in private firms’ innovative investment spending. However, I show also large heterogeneity in the firms’ response. In particular, I find that the positive effect on investment, compatible with the input-additionality hypothesis, comes from medium-large firms and low-tech medium-large enterprises. Finally, I show that the program has considerable indirect effects on medium-large low tech service firms’ labour demand but not on overall firms’ productivity.