The employment impact of business investment incentives in declining areas: an evaluation of the EU “Objective 2 Area” programs.

Beginning in 1989, the European Union started targeting its Structural Funds business incentives geographically to industrial areas that have been facing above average unemployment and industrial job loss. Although billions of euros have been invested in these Objective 2 areas, very little is known about the effectiveness of these public expenditures. This paper develops an estimation strategy utilizing parametric difference in difference specifications to estimate the impact of business incentives offered in the Objective 2 areas of central and northern Italy between 1995 and 1998. The paper finds the incentives to be most effective in the areas that faced the least pre-intervention employment loss.