Subsidies for innovative start-ups and firm entry

Abstract

Abstract We provide a counterfactual evaluation of a policy implemented by two Italian regional governments (the autonomous provinces of Trento and Bolzano) to subsidize the entry of new and technologically advanced companies. Using a regression discontinuity design, we show that the subsidies were effective in stimulating the entry of new firms. The policy was able to increase the probability to create a new company by 30–40% points; the probability to create a firm for non-treated applicants averaged around 50%. We also analyze the economic impact of the program. Our estimates show that the policy did not raise (in the first 4 years) the innovation potential of treated firms (as measured by patenting activity); the value added generated by the policy in the first 3 years is equal to 3 million euros (the total amount of subsidies is 8 million).