Seminar: Accidental Randomization and Place Based Policy Evaluation: New Answers to Longstanding Questions

Time: 13.00-14.00 hours
Location: CPB-office, Van Stolkweg 14, The Hague

Presentation: Chiara Criscuolo (LSE and OECD)

Discussant: TBA

Language: English

Registration:  Please register by sending an email to seminars@cpb.nl.

Abstract subject
Regional disparities are a main concern in many countries across the world. Governments of both developed and developing countries are creating place based economic development programs to reduce such regional inequalities. The effectiveness of these policies is hard to assess, not only because of the difficulty in assessing the costs of the policy but also because it is particularly difficult to causally identify their impact. Besides, most studies focus on estimating what is the impact on an area of becoming eligible for a policy. Very few studies estimate what happens when an area loses eligibility and therefore answer the question of whether the policy has a long term effect on the area even after the support has been withdrawn. This paper contributes to this growing literature in at least 3 ways: (1) we build a simple search and matching model of unemployment with capital  and investment subsidies, (2) we come up with a credible identification strategy by exploiting what can be defined as an accidental randomization in the eligibility to such a local support policy and (3) we study not only whether regional support is effective but also whether the effectiveness of the policy outlasts the period in which firms are eligible to receive support. In line with the predictions of our theoretical model, we find that regional investment subsidy programs are effective in reducing unemployment and that this positive impact is reversed once the policy is withdrawn. We find that whatever positive effect the policy has on area level unemployment this effects attenuates after about 5 years, which is actually the legal period that companies are requested to maintain employment if they do not want to pay (at least part of) the grant back to the government.

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