The impact of place-based policies on income distribution

This paper assesses the causal impact of a prominent place-based policy - the EU cohesion policy - on income distribution in the receiving areas by studying a severe contraction of financing, which took place in the Italian region of Molise starting from 2008. We focus on the Gini Index at the municipality level and leverage a spatial difference-in-discontinuity empirical design. We show that local income distribution becomes more equal in the municipalities exposed to the shrinkage of EU funds, relative to untreated units located on the other side of the geographical border that identifies the generosity of aid regimes. The decrease in the Gini coefficient is due to the move of top earners to the center of the distribution. The reduction in the Gini index is confirmed even if we resort to a region-level analysis, in which the causal effect of the end of the policy is assessed by means of the synthetic control method.