Identifying the effects of place-based policies – Evidence from Germany

Abstract

The German government provides discretionary investment grants to structural weak regions to allow them to overcome disadvantages. The legislatives of the European Union (EU) however restrict the number of supported regions: The share of population in assisted regions is not allowed to exceed an arbitrarily defined threshold. We use a regression-discontinuity design that exploits a discrete jump in the probability to receive investment grants. Thus, we identify causal effects of the investment grant treatment on area level economic outcomes. We find positive effects for regional gross value added and productivity growth but no effects for employment and gross wages growth.