- Restrictions on Access:
- Restricted (Penn State Only).
- This paper studies the effects of investment subsidies on firm's dynamic investment choices and aggregate investment. In particular, I focus on a subsidy program in which the Greek government subsidizes the acquisition of capital for selected firms. To analyze this program I develop a theoretical dynamic model of a firm's decision to invest in physical capital in the presence of the investment subsidy policy which effectively changes the price of capital for subsidized firms and the expectations about future capital prices for all firms. Using a novel micro-level dataset for the Greek food and beverages manufacturing sector that distinguishes subsidized from unsubsidized firms, I estimate the effect of the policy on firm investment behavior with two methodological approaches. A reduced-form firm investment demand equation is specified to estimate the average treatment effect of the policy on investment demand controlling for unobserved productivity. Exploiting variation in the intensity of the policy across locations and time a difrerences-in-differences investment demand regression is estimated. The results of this diff-in-diff analysis indicate that the policy has an economically significant effect on unsubsidized firms' investment behavior. The theoretical dynamic model is extended to a structural econometric model for estimating policy-invariant parameters by exploiting the firm's optimality conditions. I then use these estimated parameters to simulate alternative counterfactual policy scenarios. Consistent with the reduced-form evidence, the estimated structural model predicts that subsidized firms invest more because of the policy while unsubsidized firms invest less because the policy increases their option value of waiting. I also find that subsidies are not randomly allocated among firms as the the probability of being subsidized increases with productivity.
- Dissertation Note:
- Ph.D. Pennsylvania State University 2015.
- Technical Details:
- The full text of the dissertation is available as an Adobe Acrobat .pdf file ; Adobe Acrobat Reader required to view the file.
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