Investigating the effectiveness of public subsidies to hotels: Evidence from an Alpine region

This paper investigates the effect of capital public subsidies on hotels' performance. The empirical domain of analysis is the hotel industry in the Trentino province of Italy and the subsidies granted therein by the local government. The objective variables of the study are typical performance indicators, i.e., productivity, profitability, occupancy rate, and demand variability. A conditional difference-in-differences estimator is used to estimate causal effects by controlling for observed and time-invariant unobserved hotel heterogeneity. Public subsidies have a positive effect on hotel performance. This effect is, however, greater in highly attractive destinations than in less attractive ones, with public intervention potentially increasing the divide between the two.