tax credit policy and firms' behaviour: the case of subsidy to open-end labour contract in italy

In the past decade fixed-term contracts have been widely used to ease the regulatory burden in several European labour markets. Because there is some concern that they might be a dead-end for many worker, policy makers have intervened to increase transitions from fixed-term to open-end contracts. The effects of these interventions have not been thoroughly studied. This paper is a contribution to fill the gap. We look at a recent Italian policy designed to foster hiring with open-end rather than with fixed-term contracts. Our results seem to indicate that most of the financial support was wasted because of the large dead-weight loss associated to the program. Firms used the subsidy primarily to hire under open-end contracts workers who would have been hired under such contracts regardless of the subsidy, albeit after a short transition into temporary employment