LESSONS FROM THE EVALUATION OF TWO ITALIAN ENTERPRISE

SUPPORT PROGRAMMESDaniele Bondonio

Alberto Martiniet al.

The two programmesOne national, targeted to all firms but

focused on the SouthOne regional (the combination of 29

measures in Piemonte, for which only SMEs were eligible)

PIEMONTETorino

FiatHoly Shroud

2006 WinterOlympics

Home of the 2012 CIE Summer School (Aug 30-Sep 9)Home of the 2010 CIE Summer School at PRACATINAT

A nation-wide programme targeted to industrial firms in disadvantaged areas, to support investments in physical

capital, providing non-repayable grants

No limit on firm size, but mostly small firms50% of grant recipients < 10 employees, only 1% > 500

Average grant size € 420,000

Total outlays € 2.6 billion in 2000-2006

Law 488/92

multitude of support measures for SMEs in Piemonte About 10,000 recipients

1500 capital grants (14%)7800 interest-rate grants (75%) 1000 soft-loans (10%)

Average equivalent value of subsidies = € 10,600Total resources spent in 2005-09 = € 120 million

29 ways to help SMEs in PIEMONTE

What are the effects of these programmmes on employment, sales and investment?

Which difference does public support make for different firms?

Which evidence can be trusted for future decisions?

Used a rigorous approach

Jobs due to the subsidy =

change in employment among subsidized firms−

change in employment among subsidized firms if they had not been subsidized

(the latter is known as counterfactual, and can never be observed)

IN PRACTICE WHAT IS DONE IS TO FIND A PROXY FOR THE COUNTERFACTUAL

Jobs due to the subsidy

=change in employment among subsidized firms

-change in employment among NON subsidized firms THAT ARE “IDENTICAL” TO THE SUBSIDIZED FIRMS

IDENTICAL ……. VERY SIMILAR …….. WITH THE SAME OBSERVABLE CHARACTERSITICS

Law 488 used rankings based on five indicators, one of which was

“jobs to be created”

Rejected and accepted firms share the same willingness to invest, and the residual differences can be more easily

eliminated through matching techniques

So we used matching techniques on applicants firmsusing outcome data provided by ISTAT

AND WE GOT SOME INTERESTING RESULTS

Let’s do the official calculationsFunds disbursed for Law 488 € 2,600,000,000“target” jobs (TARGET “ACHIEVED”) 82,000 jobs

Cost per job € 31,700

Number of firms subsidized = 6,189Impact of subsidy = 1.82 additional jobs per firm

Number of jobs really created = 11,236

Cost per job really due to the subsidy = € 231,207

OUR CALCULATIONS

The results are very different for the 29 programs for SME

1.82

232, 000

Law 488

Is this enough evidence to prove that

SMALL IS BEAUTIFUL?

CERTAINLY NOT YET!

Does the size of 488 grants matter?

Is it the size of the firm to make a difference?

capital grants

interest-rate grants

soft-loans

WHICH ONE IS MORE COST- EFFECTIVE?

The ways to help SMEs in PIEMONTE

POLICY IMPLICATION: MAKE NO PRESENTS, HELP THEM TO GET CHEAPER FINANCING (EITHER WITH LOANS

EITHER PAYING THEIR INTEREST COST)

AND THE WINNERS ARE

SUMMARY OF THE RESULTSHolding everything else constant…..• Large grants are less cost-effective than smaller grants• Grants to large firms are not cost effective • Re-payable assistance is more effective than capital grants

Results suggest that credit market imperfections for SMEs are the main issue that may justify public intervention

No evidence of effect on the quality of the jobs generated by the subsidies

Sales and investment results follow the same pattern of employment

(albeit with some additional volatility due to data quality)

page

SHOWS THESE RESULTS TO THE POLICY MAKER

HO HO HO HOLY SHIT!HO HO HO HOLY SHIT!

FOR CHRISTMAS WE WILL GET NO PRESENTS,

ONLY SOFT LOANS,

AND THOSE WHO HAVE BEEN REALLY NAUGHTY

WILL GET ITALIAN GOVERNMENT BONDS

HO HO HO EUR HO