Public subsidies, TFP and efficiency: A tale of complex relationships

This paper evaluates the impact of subsidies on the different components of TFP for granted firms' long-term growth. The impact of capital subsidies is captured by a quasi-experimental method (Multiple RDD), exploiting the conditions for a local random experiment created by an Italian industrial policy. Results show that capital subsidies negatively affect TFP growth in the short term, and signals of positive effects appear only after 3-4 years. This positive medium-long term impact comes especially through technological change and not through scale impact change, as may have been expected.