Abstract
This paper assesses the effects of a significant place-based intervention that targeted local businesses in deprived areas in the UK. To gain identification, we use data at a fine spatial scale and a regression discontinuity design exploiting the eligibility deprivation rank rule based on a pre-determined deprivation index. We detect no overall effects on employment in treated areas but find a significant displacement of employment from nearby untreated areas, corresponding to around 10% of local employment. The results suggest that indirect displacement effects may substantially weaken the ability of local support programmes targeting the non-tradable sector to reduce economic inequality.
Highlights
Many governments target significant amounts of public spending at areas experiencing poor economic performance
2 We show that pre-policy outcomes are balanced between treatment and control groups, there is no bunching at the regression discontinuity (RD) threshold, and that our results are robust to a battery of RD validity checks
While we cannot completely rule out the possibility that control areas further away from the boundary may be affected by displacement, such effects would bias our estimates downwards, and our analysis provides a lower bound for the displacement effect
Summary
Many governments target significant amounts of public spending at areas experiencing poor economic performance. This condition is likely to hold in the case of interventions that target local non-tradable markets, which typically have limited spatial scope Using both the difference-in-difference and RD estimators, we detect significant displacement of employment from unsupported to supported areas. Criscuolo et al (2019) estimate the effects of a local investment subsidy programme in the UK targeting the manufacturing sector They find no evidence of indirect effects on employment in nearby untreated areas. Our finding of substantial displacement of employment in the short-run and no aggregate or long-term effects combined with evidence of positive persistent impacts found in studies examining schemes which have wider sectoral scope and focus on investment highlights the importance of efficient targeting of place-based policies.
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