Effectiveness of State Aid on Firm Performance: Evidence from the EU

Despite renewed interest in industrial policy, empirical evidence on state aid effectiveness remains limited. We examine the short-run effects of large state aid awards across 22 EU Member States, linking firm-level data from Orbis with publicly disclosed awards granted in 2017-2018. Using a generalized difference-indifferences design, we estimate effects on investment, employment, and productivity. State aid significantly increases capital investment, particularly among SMEs and firms receiving regional development aid, which are groups more likely to face financial constraints. Effects are strongest in Central and Eastern Europe. However, we find no corresponding improvements in productivity or employment within two years. These findings suggest that while state aid effectively stimulates investment in the short run, productivity gains may take longer to materialize, and efficiency gains could be obtained from better targeting and EU-wide coordination.