Declining Free Lunch: State Capacity and Foregone Public Spending
Sarah Fritz, Lorenzo Incoronato, Catherine van der List
RFBerlin Discussion Paper,
No. 67,
2025
Abstract
This paper documents substantial fiscal waste in the context of one the world’s largest regional development programs – the EU Cohesion Policy. We study Italy, and find that 20% of funding commitments are never paid out and funneled into unfinished or never-started projects. In our setting, this happens for reasons unrelated to fiscal constraints – municipalities appear to simply leave money on the table. Foregone spending is more prevalent in Southern regions, but there is also stark variation across municipalities within regions. We show that such under-utilization of available funds is strongly associated with limited administrative capacity of local governments.
Read article
Reshaping the Economy? Local Reallocation Effects of Place-Based Policies
Sarah Fritz, Catherine van der List
CESifo Working Papers,
July
2025
Abstract
We study the effects of place-based policies on aggregate productivity using administrative data on projects co-financed by the EU in Italy linked to balance sheet data. We exploit quasi-experimental variation in funding for a large place-based policy stemming from measurement error in regional GDP estimates. Results show that the policy likely decreases productivity. Decompositions reveal that aggregate declines are driven by reallocation of labor to low-productivity firms. Mechanism analysis using firm-level event studies reveals that negative reallocation effects are caused by high-productivity firms taking up the funds and subsequently becoming more liquidity constrained, leading to slowdowns in employment growth.
Read article
Project Team
Project Team | MULTIMSPROD Meet the ProdTool Project Team Co-Directors Filippo Di Mauro ProdTool Project Coordinator Javier Miranda ProdTool Research Coordinator Eric Bartelsman…
See page
Research Articles
Research Articles Explore cutting-edge research based on CompNet’s micro-aggregated firm-level data and related analytical tools. These articles cover empirical and theoretical…
See page
Overview
About the project Project Information: ProdTool – NPB 2.0: Micro-Data Analysis Tool 2.0 for comparative productivity studies at National Productivity Boards (Project acronym:…
See page
Firm Responsiveness
Firm responsiveness How firms respond to sudden changes in profitability affects the process of job creation, job destruction, aggregate investment and how fast resources are…
See page
9th vintage
9th Vintage CompNet Dataset The CompNet dataset includes a set of micro-aggregated indicators to enhance policy and academic analysis on competitiveness and productivity. All the…
See page
14th CompNet Annual Conference
14th CompNet Annual Conference 25-26 September, 2025 in Vilnius, Lithuania Programme Highlights – 14th CompNet Annual Conference, Vilnius, 25–26 September 2025 The conference…
See page
Past Events
Past Events 14. CompNet Annual Conference (Vilnius, 25-26 September 2025) The 14th CompNet Annual Conference, co-hosted with the Bank of Lithuania, took place on 25–26 September…
See page
13 CompNet Annual Conference
13th CompNet Annual Conference The 13th Annual Conference in Valletta, hosted by the Central Bank of Malta, was a resounding success. We extend our heartfelt thanks to everyone…
See page
