Are European funds that support the formation of new firms well spent? New evidence on the role of public expenditure for entrepreneurship in Italy

This paper analyses the relation between the European expenditure for entrepreneurship in 2007-2013 and new firm formation in the Italian provinces (NUTS3 level). Binomial regression models are used to estimate the effects of public spending as well as of a set of control variables drawn from the literature on new firm formation. We find that EU spending has a positive and significant effect on new firm formation. We also find a clear evidence of positive effects of: human capital, demand growth (measured by the average annual growth rate of population) and density of economic activity (measured by the number of existing firms per thousand inhabitants). The role of other factors is less clear but, overall, the findings confirm that even in a time of recession, the resources used for entrepreneurship policy had the desired effect and more can be done in the future to extend their scope and coverage.