European Center for Advanced Research in Economics and Statistics

Title : "Who benefits from industrial policy? Evidence fromfirm investment grants"


Abstract : This paper studies the distributionalconsequences of firm investment grants. We exploit Portugal’s PT2020 program, amajor component of the European Union’s Cohesion Policy, which allocatesinvestment support through competitive calls for applications. Usingadministrative data covering the universe of applicants, we compare fundedfirms with unsuccessful applicants within the same call and complement theanalysis with local comparisons around the effective funding cutoff. We findthat investment grants generate substantial increases in capital accumulation,employment, value added, and profitability. Despite

these large firm-level gains, we find littleevidence of changes in workforce composition. Instead, the gains generated byinvestment support are distributed unevenly. Profitability increasessubstantially, while wage gains are concentrated among incumbent workersemployed in high-skill occupations. By contrast, workers employed innon-high-skill occupations experience little wage growth. Finally, largergrants generate additional increases in firm scale and profitability but nocorresponding wage gains for incumbent workers. This contrast indicates thatthe distribution of gains within firms does not scale proportionally with themagnitude of investment support. Overall, our findings indicate that industrialpolicy generates substantial economic gains, but that these gains accruedisproportionately to firm owners and skilled workers.

Speaker: Stefano Falcone (Collegio Carlo Alberto)

Title : Inequality and Conflict in Catalonia

With Daniel Carrera Abad, Andrea Pop Catalisan, and Gianluca Russo.

Abstract:
We study how historical inequality shapes long-run political preferences. Our setting is Catalonia, where Christian counts expanded southward into Al-Andalus between the ninth and eleventh centuries at heterogeneous speeds, creating a frontier whose location was driven by idiosyncratic military events. Using a spatial regression discontinuity design comparing municipalities on either side of this frontier, we find that areas conquered more rapidly display persistently stronger support for the radical left. Southern municipalities show higher vote shares for radical-left parties in all democratic elections since 1977, a greater historical presence of anarcho-syndicalist and communist organizations, and more frequent protest activity. These patterns extend back to the Second Republic and the Spanish Civil War, including differences in militias, collectivization, and repression. We trace these effects to the resettlement process in fast-conquered territories, which produced concentrated landholding, weaker state capacity, and a large class of landless peasants. Our findings show how inequality under weak political authority can generate lasting radical political identities.

Seminar: 14:00–15:15 (75 minutes, including Q&A).

Title: Sorting into Entrepreneurial Teams.

Abstract: This paper studies how entrepreneurs sort into founding teamsand how team composition shapes the firm distribution. We develop a theory ofcareer choice and team formation in which skill complementarities make teamentrepreneurship attractive for agents with unbalanced skill profiles, whiletalent similarity makes teaming preferable to other career options. Usingmatched employer-employee and balance-sheet data from Portugal, we show thatteams combining similar talent with diverse specializations create larger, moreproductive, and longer-lived firms; yet founders with dissimilar skills areless likely to start firms together. We calibrate the model to reproduce thesepatterns and use it to quantify the cost of imperfect founder matching. Counterfactualsshow that reducing founders’ biased exposure reallocates activity fromlow-productivity solo firms toward more productive teams. An optimal-assignmentbenchmark reveals that even unbiased random search leaves substantial gainsunrealized because high-surplus matches fail to form.

Title : "Field Choice, Skill Specificity, and Labor Market Disruptions"

Abstract : We study how labor markets adjust to disruptions through the field-of-study choices of new cohorts.We develop a dynamic general-equilibrium model in which forward-looking students choose afield at college entry and later switch occupations, and estimate it on Danish administrative data.Fields differ in the comparative advantage and switching costs they give workers, and ignoringfield choice understates the elasticity of occupational switching by a factor of 6.7.We then studya trade war and an AI shock to skills. Field choice matters when a shock changes relative fieldvalues. The trade war leaves these values unchanged, so field choice barely responds. The AIshock moves them apart, and re-choosing fields nearly doubles the lifetime income gain, by 1.36percentage points. Policies that enhance flexibility in field choice raise lifetime income by 4.46percentage points. This value barely changes under the trade war but falls under AI.