Heterogeneous Effects of Place-Based Policies and a Practical Treatment Assignment Rule

We empirically assess the treatment effects of a place-based policy in Japan and propose socially desirable and practically feasible treatment assignment rules for the program. To account for the heterogeneity of treatment effects, we estimate the conditional average treatment effect for each region using a marginal treatment effect framework and construct treatment rules based on regional characteristics such as demography, degree of suburbanization, and local production network. We find that the program had positive impacts on retail floor space and per-worker retail sales. However, we also find that the treatment effects are significantly heterogeneous and the total welfare gains could have been larger under the treatment rules we proposed, which target the cities facing a "modest" decline of city centers. We also show that different regional characteristics should be conditioned for different outcomes to construct the most effective rule. This demonstrates the difficulty of pursuing multiple objectives with a single rule. While the program was effective for its main target industry, we did not observe any significant effects on general economic outcomes such as land price and income tax revenue