Overall economic impacts of business subsidies

This project follows on the research carried out in project "Overall economic impacts of business subsidies". Understanding the overall economic impacts of business subsidies is essential for planning effective support policies and implementing industrial policy measures.

Studies have frequently focused on development aid and its impacts on companies' innovation activities and other factors measuring their financial performance (incl. productivity). Studies relying on the most methodologically reliable methods have mainly used so-called pseudo-trials, in which the control group is credibly similar to the companies receiving subsidies in terms of its background factors, and the effects of the subsidies are assessed based on estimated differences between these groups after the intervention. Successful business subsidy policy can accelerate economic growth and improve competitiveness.

On the other hand, subsidies can at worst slow down productivity growth. The overall economic impacts of subsidies have not previously been examined using an overall economic model in Finland. It is consequently not clear if the current subsidy allocation supports growth or not. In particular, research evidence is needed on how different allocations of subsidies affect productivity growth. The project applies the model developed by Acemoglun et al. (2018) (AAABK model), which makes it possible to assess the overall economic impacts of different policy measures.

Partners: Etla, Hanken, Bank of Finland, Aalto University

Responsible researcher: Elias Einiö, [email protected], +358 295 519 408