Evaluating the impact of investment incentives: The case of Italy's Law 488/1992

Italy's Law 488/1992 allows firms willing to invest in lagging areas to receive a public subsidy. By comparing subsidized firms with firms with rejected applications, this paper evaluates whether the program made investments possible that otherwise would not have been made. We find evidence that financed firms brought forward investment projects originally planned for the post-intervention period to take advantage of the incentives. We also find some support that subsidized firms may have taken some of the investment opportunities that unsubsidized firms would have exploited in the absence of incentives. (c) 2006 Elsevier Inc. All rights reserved.