Impotence of Crisis-Motivated Subsidization of Firms: The Case of Slovenia

Abstract

This analysis examines the impact of crisis-motivated subsidization of Slovenian firms on their performance during the 2008 recession. Propensity-score matching combined with the difference-in-differences (the DID) approach is applied to estimate the effects of anti-crisis subsidies granted in 2009–2015 on recipient firms’ sales and employment. To control for other factors determining firms’ growth during the recession, the DID regression method was applied. An insignificant impact of anti-crisis subsidies on revenue and positive effects on employment of subsidized firms was found. Positive effects identified are generated by state aid schemes that are not primarily aimed at alleviating the crisis.

Keywords:

• de minimis aid
• economic crisis
• firm growth
• Slovenia
• state aid

JEL Classification:

• L25
• L53

ACKNOWLEDGMENT

The project “Učinek Vladnih Protikriznih Ukrepov na Delovanje Podjetij v Pogojih Gospodarske Recesije” (The Impact of Government Anti-Crisis Measures on Firm Performance During Economic Recession), CRP V5-1005, was financially supported by the Slovenian Research Agency.

Notes

1. Due to the specificity of the financial sector and lack of data on financial companies, all state aid administered to this sector is omitted from the summary statistics and empirical analysis.

2. See Coad (2009) for an overview of the determinants of firm growth used in empirical studies and Storey (1994) for factors behind firm post-entry performance.

3. Most of them are also correlated with the status of the state aid recipient.

4. Appendix Table A3 (available online) presents the results of propensity-score estimations for each state aid measured separately, corroborating the heterogeneity of the programs and validating the strategy to estimate propensity-scores for each program and year separately. For example, indebtedness and profitability is a much stronger determinant of first category anti-crisis aid, R&D subsidies are more likely for faster growing and highly internationalized firms, while employment subsidies are more driven by small size and low productivity.

Additional information

Funding

This work was supported by the Slovenian Research Agency [CRP V5-1005].

Notes on contributors

Anže Burger

Anže Burger is an Associate Professor in the Faculty of Social Sciences, University of Ljubljana, Ljubljana, Slovenia.

Matija Rojec

Matija Rojec is a Senior Research Fellow at the Institute of Macroeconomic Analysis and Development, Ljubljana, Slovenia.