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Job creation and firm-specific location incentives
Abstract
Government economic development programmes provide opportunities for firms to leverage financial incentives for business expansion and relocation. This article examines the ability of these incentives to promote employment. Using establishment-level data from the state of Kansas as well as original firm-level survey data, I evaluate the effectiveness of financial incentives in creating jobs through recipient firms. My findings from the establishment-level data indicate that incentive programmes have no discernable impact on firm expansion, measured by job creation. In addition, the survey data suggest that incentive recipients highly recommend this programme to other firms, but few firms actually increased their employment in Kansas because of these incentives; similarly, very few firms would have left the state if they had not benefited from this programme. Thus, incentives have little impact on the relocation or expansion decisions of firms.
... Kansas eyaletinde yapılan bu çalışmada, teşvik programlarının istihdam yaratmada fark edilecek kadar anlamlı bir etkisinin olmadığı sonucuna ulaşılmıştır. Kansas'ta bu programı uygulayan işletmelerin diğer işletmelere teşvik sisteminden faydalanmayı ısrarla tavsiye etmelerine rağmen çok az firmanın bu teşvikler nedeniyle istihdamı artırdığı görülmüştür (Jensen, 2017). ...
... These results are supported by some studies (Aydıner, 2015;Chaurey, 2016;Doganalp, 2019;Silver, 2023;Hazman & Yayla, 2021;Koban & Keser, 2012;Lök, 2018;Mamo, 2020;Mitchell et al., 2020;Ulusoy & Akarsu, 2012;Yavuz, 2010). However, studies that do not support these findings (Akcan & Azazi, 2022;Baykul, et al., 2019;Bryne, 2017;Bulut & Pinar, 2020;Jensen, 2017;Koç & Şahin, 2020;Shirinko & Wilson, 2008;Walker & Greenstreet, 1991). ...
Türkiye’de özel okulların önemi ve sayısı günden güne artmaktadır. Özel okulların nicel artışı; istihdama katkı sağlaması, vergi gelirlerini arttırması, eğitimde devletin yükünü hafifletmesi ve bağlı birçok sektörü hareketlendirerek bu sektörleri canlı tutması açısından önemlidir. Bu yüzden de devlet, özel okullar için destek politikaları geliştirmektedir. Araştırmanın amacı, devletin özel okullara yaptığı “eğitim ve öğretim desteklerinin” özel okul sayısı ve bu okullarda istihdam edilen öğretmenlerin sayısına ne kadar etki ettiğini ve bu tür desteklerin sektörün geleceği için nasıl bir tesire sahip olduğunu ortaya koymaktır. Araştırma, sektörün bu tür politikalardan ne şekilde etkilendiğini göstermesi, sektörün geleceğine ışık tutması ve sektöre müdahale etme gücüne sahip aktörlere yol göstermesi açısından önemlidir. Araştırmada nicel araştırma yöntemlerinden olan “nedensel karşılaştırma araştırması” yöntemi kullanılmıştır. Veriler Millî Eğitim Bakanlığı Strateji Geliştirme Başkanlığı’nın internet sitesinden alınan nicel, ikincil verilerdir. 2013-2020 yıllarını kapsayan bu veriler ikincil veri analiz yöntemi ile analiz edilmiştir. Araştırmada, özel okullara verilen eğitim ve öğretim desteklerinin (genel ortaöğretim düzeyinde) özel okul sayısına ve bu okullarda istihdam edilen öğretmen sayısının oransal değişimine anlamlı düzeyde etki ettiği bulgusuna ulaşılmıştır. Bu nedenle özel okul yatırımcıları ve yetkili makamların, yatırım ve politika kararlarında bu bulguları göz önünde bulundurması sektörün geleceği açısından önem arz etmektedir.
... iii This net new activity is variously called the "but for" effect (Bartik 2018a), "additionality" or "incrementality" in the small business finance literature (Riding, Madill, and Haines 2007), and its complement, referred to as "deadweight" by several European authors (Lenihan 2004;Tokila, Haapenen and Ritsilä 2008). Studies that attempt to gauge these impacts have generally taken four different approaches: (a) hypothetical firm simulation approach (Fisher and Peters 1998), (b) ex post econometric estimation of incentive effect on employment (Brown and Earle 2017;Jensen 2017aJensen , 2017bFaulk 2002), (c) indirect estimation based on state business activity tax elasticities (Bartik 2008b), and (d) analysis of survey self-assessments (Lenihan 2004;Lynch, Fishgold and Blackwood 1996;Jensen 2017a;Haapanen 2011, Tokila, Haapenen andRitsilä 2008). ...
... iii This net new activity is variously called the "but for" effect (Bartik 2018a), "additionality" or "incrementality" in the small business finance literature (Riding, Madill, and Haines 2007), and its complement, referred to as "deadweight" by several European authors (Lenihan 2004;Tokila, Haapenen and Ritsilä 2008). Studies that attempt to gauge these impacts have generally taken four different approaches: (a) hypothetical firm simulation approach (Fisher and Peters 1998), (b) ex post econometric estimation of incentive effect on employment (Brown and Earle 2017;Jensen 2017aJensen , 2017bFaulk 2002), (c) indirect estimation based on state business activity tax elasticities (Bartik 2008b), and (d) analysis of survey self-assessments (Lenihan 2004;Lynch, Fishgold and Blackwood 1996;Jensen 2017a;Haapanen 2011, Tokila, Haapenen andRitsilä 2008). ...
This paper examines the effectiveness of state economic development incentive programs in stimulating new business activity. It reviews literature that identifies factors that potentially influence the effectiveness of incentives. Empirical work draws on a 2018 survey of approximately 150 firms that received at least one award for startup, expansion, or relocation purposes during the period SFY2010–SFY2016 from a state economic development incentive program (i.e., grant, tax credit, loan, equity investment) offered by the Commonwealth of Virginia. The paper evaluates the role of program design features (e.g., discretionary vs. automatic, relative size of incentive), firm characteristics (e.g., size of firm, industry), and locational variables (e.g., state boundary location, rurality) on firm assessments of the role of incentives in business growth decisions. It finds that firms that receive up‐front or discretionary program awards and undertake multistate site searches are less likely to report that the incentive was not needed for their project to succeed. These results suggest that automatic, back‐loaded award programs, and programs that fund noncompetitive projects are less likely to affect firm location and expansion decisions.
... Politicians' enthusiasm for these programs is not being driven by academic studies highlighting their effectiveness. Numerous studies find that these incentive programs have limited impact on investment decisions and that the programs' price tag often exceeds their benefits (Jensen, 2017). ...
... Despite these general findings in the literature, there is considerable heterogeneity in the impact of incentives across studies, partially due to the different time periods and research methods used to analyze incentives (see Buss, 2001). In this paper, I examine two separate incentive programs, estimating the impact of the programs on job creation in Virginia and Maryland, and complement published work on the main Kansas economic development program (Jensen, 2017). Do these incentive programs generate jobs or do they incentivize companies that were already expecting to create jobs? ...
Economic development incentives target individual firms for financial or non-financial benefits to induce capital investment or job creation. Previous studies have found a mixed impact of incentives on economic development, with numerous studies pointing to no impact of incentives on economic growth or job creation. I add to this literature by analyzing two different state economic development incentive programs using the same methods and time-period, allowing for direct comparability. My analysis is the first, “pre-registered” study of incentives, where all of the data collection, design and methodological decisions were made and documented prior to receiving the data. Using a pre-registered matching method design, I estimate the impact of Maryland and Virginia’s flagship economic development incentives on job creation. My main finding is that these incentive programs had essentially zero impact on job creation when they are compared to a control group of similar firms. My secondary results find that even after removing firms from the analysis that were subject to “clawbacks” based on non-compliance with the incentive agreement do not improve the overall performance of the program.
... Confirmation of such results also appears in Jensen's work that has as a central element the impact of financial incentives on business expansion and relocation (Jensen, 2017). The article examines the ability of such financial incentives to determine employment. ...
... Homeless issues have provided more attention than acknowledging people with social problems divided into two opposite views. On the one side, the homeless are following the housing right (Charkhchi et al., 2018;Chinchilla et al., 2021;Kourachanis, 2019;Minnery & Greenhalgh, 2007;Watts, 2014), on the other side, it has concerned the fulfilment well-being within the job insurances (Jensen, 2017;Makiwane et al., 2010). To respond to these controversies, many countries in developed countries have applied social care within the universalism paradigm incorporating the opportunity for job employment, housing and modelling the welfare provision for vulnerable groups. ...
Artikel ini mencari sistem perlindungan sosial bagi penyandang masalah gelandangan dan pengemis di bawah kebijakan daerah Indonesia. Pengamatan saya menunjukkan meskipun kebijakan sosial berubah yang membantu untuk memahami masalah tunawisma yang berisi masalah identifikasi, bias perkotaan, validasi kemiskinan, siklus perubahan, kualitas hidup, dan penuntutan, masalah identifikasi gelandangan dan pengemis tetap menjadi dilema. Kebijakan sosial harus menciptakan sistem terpadu sebagai bagian terpenting dalam pengentasan kemiskinan perkotaan, perlindungan dan pemberdayaan sosial, dan mekanisme rujukan secara jelas. Norma dan prinsip kemanusiaan harus diberikan kepada orang-orang yang terjebak oleh kerentanan sosial, dan perlindungan sosial harus dipadukan antara dukungan publik dan pemerintah. Kata Kunci: Kebijakan sosial, Perlindungan gelandangan, Shelter, Bias Perkotaan, Standar Validasi Kemiskinan This article seeks social protection for people with homeless problems under Indonesian regional policies. My observation demonstrates although the social policies changed that help us comprehend homelessness concerns containing identification issues, urban bias, poverty validation, the cycle of change, quality of life, and prosecution, an identification issue on homeless remains a dilemma. Social policies should create integrated systems as the most important in urban alleviating poverty, social protection and empowerment, and referral mechanisms. Norms and principles of human dignity must provide to people who are trapped social vulnerable, while social protection should be combined between public and government support. Keywords Social Policy, Protecting Homeless Issues, Local Shelters, Urban Bias, Standard of Poverty Validation.
... Bartik (2017) Slattery (2020). 25 See Greenstone and Moretti (2003); Bondonio and Greenbaum (2007); Jensen (2017aJensen ( , 2017b; Patrick (2014). 26 Bauerle Danzman and Slaski (2022b). ...
Why are politicians selective in granting investment incentives to foreign direct investment (FDI) projects? One understudied reason is that politicians want to minimize backlash from voters. In this article, I present the first study to systematically analyze voter preferences toward investment incentives. I theorize that voters should be more likely to support investment incentives for FDI projects that they perceive as “high quality”—that is, projects that voters perceive to be highly effective in improving the living standards of their communities. As a result, I expect that politicians who support low-quality FDI projects with incentives will lose voter support. A factorial survey experiment in the United States provides evidence in favor of this argument. Voters reward politicians only if they provide investment incentives to high-quality projects. An additional conjoint survey experiment highlights the importance of project characteristics that indicate high quality in increasing the approval of investment incentives. To demonstrate the external validity of these experimental results, I present descriptive evidence that illustrates the consistencies between the determinants of investment incentives for FDI projects and voter preferences.
... Property tax abatements may promote local employment growth, but competition among jurisdictions may drive away any long-term benefits (Leonard et al., 2020). Financial incentive programs may have no discernable impact on firm expansion (Jensen, 2017), employment, and growth (Neumark & Grijalva, 2017;Patrick, 2014;Slattery & Zidar, 2020) and can be easily outweighed by other factors (Bartik, 2018;Kenyon et al., 2012). ...
Governments use economic development incentives to attract new investment and retain existing businesses. Empirical evidence for their effectiveness remains inconclusive. This research tests the effect of incentives on the number of firms, employees, and their payroll in a longitudinal study of all county governments in the state of Georgia over 16 years. It incorporates a comprehensive set of incentives offered by counties to attract and retain businesses and accounts for the frequency of their use and financing level. Empirical findings indicate that industrial development bonds are significantly associated with the number of firms in the average county. This association is stronger in rural areas and not significant in urban counties. Subsidies, on the other hand, tend to be negatively associated with the number of firms in urban counties, but not in rural counties. No incentive is significantly correlated with firm employees or payroll.
... This figure is dwarfed by investment incentives provided by developed economies; the US alone spent $45 billion on these programs in 2015 (Bartik 2017). Despite the costs of investment incentives, a large body of research consistently finds that these policy tools are ineffective at generating high-quality investment and fostering economic growth (UNCTAD 2016;World Bank 2017;James 2010;Jensen 2017). A World Bank survey of multinational firms investing in twelve developing countries found 58 to 98% of firms would have invested in these locations without an investment incentive. ...
Governments frequently offer tax incentives to induce localized investments. This is puzzling because previous research finds tax incentives are rarely decisive factors in firms’ locational decision-making. Some argue incentives reflect hyper capital mobility, which strengthens multinational enterprises’ bargaining leverage vis-à-vis governments that wish to attract investment. Others emphasize the domestic political institutions and electoral considerations that incentivize politicians to publicly court investors. We argue that firms’ leverage over governments stems from investment characteristics associated with governments’ broader development objectives. We test our argument on deal-level data on investment incentives in Latin America from 2010 to 2017. Our results indicate firms are more likely to receive incentives when they are already embedded in local markets and when they exhibit characteristics associated with low ex post mobility. These results challenge widely held beliefs over what provides firms political power in an age of globalization, and suggest that governments use incentives primarily to fulfill their economic and political objectives rather than because globalization destroys states’ capacity to tax mobile capital.
... Research on the effects of the incentives that governments offer typically explores the economic implications of business expansion or focuses on the role of local governments (Buss 2001;Jensen 2017). As competition for economic development projects has tightened in the post-Great Recession environment, states have become increasingly involved in the economic development process. ...
Governments frequently use financial incentives to encourage the creation, expansion, or relocation of businesses within their borders. Research on financial incentives gives little clarity as to what impact these incentives may have on governments. While incentives may draw in more economic growth, they also pull resources from government coffers, and they may commit governments to future funding for public services that benefit the incentivized businesses. The authors use a panel of 32 states and data from 1990 to 2015 to understand how incentives affect states’ fiscal health. They find that after controlling for the governmental, political, economic, and demographic characteristics of states, incentives draw resources away from states. Ultimately, the results show that financial incentives negatively affect the overall fiscal health of states.
... Indeed, Alabama and South Carolina provided extensive packages to recruit Daimler and BMW, respectively, to set up factories in their states. Ironically, studies have shown that incentive programs tend to have minimal impact on job creation (Jensen 2017). 10. ...
Although recently Chinese investment in the USA has grown exponentially, it has not flowed equally among the US states. Controlling for popular explanations in the foreign direct investment literature, we carry out subnational analysis to assess the determinants of Chinese investment in the USA. Using a panel dataset for all states from 2006 to 2016, we find that Chinese firms are more attracted to states where Republican governors hold office. Republican-governed states particularly attract greenfield investments from Chinese firms. However, we also find that US national security concerns and Chinese goals appear to affect investment flows in high-technology states, limiting the role of partisanship. Our results indicate that it is too soon to dismiss the importance of politics on foreign direct investment.
... One approach to ruling out systematic differences that might influence outcomes is to identify a control group of firms that did not receive incentives but is similar in other ways to firms that received them. Because of data privacy issues, most studies have been unable to construct a comparable control group of firms that did not receive incentives, with a few exceptions (e.g., Donegan, Lester, & Lowe, 2018;Jensen, 2017). 2 Instead, evaluations of the outcomes of economic development programs tend to default to the places where subsidized businesses operate. ...
This study assesses the impacts of local business incentives in the largest urban areas of Illinois, Michigan, and Wisconsin, three Midwestern states that share similar histories and settings. We assembled a unique dataset combining information on two types of incentives, tax increment financing districts and tax abatements, together with socio‐economic, geographic, fiscal, and spatial competitive characteristics for all of the municipalities in six metropolitan areas. The outcome measures include employment growth, establishment formation, and business relocation. The analysis extends knowledge of the effects of economic development incentives in two ways. First, we improve upon previous research by incorporating key factors in municipal decisions to offer incentives. Second, we add to limited empirical evidence concerning local incentives following the Great Recession. Variation in the use of incentives reflects not only local decision‐making but also differing fiscal capacities and situations of adaptation to adverse economic conditions, with some governments pulling back on incentives and others initiating new approaches to retain or lure businesses.
... 17. See Jensen (2017), Li (2006), Pinto and Pinto (2008), and Vernon (1971) for discussions of states using incentives to attract FDI. 18. ...
Although many studies have investigated the effects of foreign direct investment on labor rights in the developing world, no studies of which we are aware have considered how differences in the mode of entry—that is, mergers and acquisitions (M&As), cross-border joint ventures (JVs), and greenfield investments (GIs)—taken by multinational corporations affect labor rights in host countries. Using panel data for up to 113 developing countries from 1985–2002, we find that foreign firms that enter via M&As tend to have minimal, or slightly negative, effects on labor rights, whereas JVs and GIs support improvements in workers’ rights. Overall, the results suggest that the sectors and motivations associated with JV and GI modes of entry increase labor demand, improving the bargaining power of workers.
Purpose
This study aims to evaluate the effectiveness of tax incentives provided by the Ethiopian government in spurring private investment and job creation, using unique administrative and survey data.
Design/methodology/approach
The study employs a dataset covering large- and medium-scale manufacturing in Ethiopia from 2012 to 2018, combined with administrative data on actual tax payments and statutory obligations to gauge the impact of tax incentives. Regression analysis using the generalized method of moments (GMM) is used to examine the relationship between tax incentives and employment, taking into account variations in production, distribution and financial costs.
Findings
The study finds that tax incentives do not significantly affect employment at conventional significance levels. The incentive elasticity of employment appears to diminish as production, distribution and financial costs increase. Consequently, the incentives provided by the government have not had a substantial impact on employment generation within the manufacturing sector.
Originality/value
This study is unique for its comprehensive analysis of tax incentives in the Ethiopian manufacturing sector using both administrative and survey data. It highlights that increasing production and financial costs can offset the employment benefits of these incentives, emphasizing the need for a more favorable business environment for private investors.
Purpose. International Entrepreneurs (IEs) increasingly cross borders to internationalize their activities, yet the various motives driving them into foreign markets are insufficiently understood vis-à-vis the public agencies striving to attract them. Our study proposes a consideration of their interplay by contrasting the various mobility rationales of IEs with those of the investment agencies striving to capture their talent.
Design/methodology/approach. Empirically, we concentrate on firms selected for funding in the French Tech Ticket, a competitive program designed to incentivize international start-ups to set up business in regional clusters across France. Using a longitudinal qualitative approach, we conducted two separate rounds of semi-structured interviews with IEs, public agency managers, and incubator staff members using thematic analysis of participant narratives on mobility.
Findings. Our findings point to diverging narratives on mobility, with an overarching opportunity-centrism on the part of the entrepreneurs and a general location-centrism emanating from the regional agencies. These contrasting visions of mobility are not mutually exclusive but rather present along a mobility continuum that generates contrasting logics.
Originality. We theorize this incommensurability as an expression of the current complexity of international mobility and policymaking, revealing a ‘next-frontier’ expansionism in cross-border movement that requires more deliberate consideration.
Purpose: This study aims to examine how government incentives affect SME employment in Türkiye's manufacturing sector. Methodology: The dataset used in this study was derived from a survey conducted by a privately owned London-based company with the assistance of Türkiye's Ministry of Industry and Technology. Ordinary least squares and two-stage least squares regression techniques were used to analyze the relationship between government incentives and employment. Findings: In the analysis, we found that between 2013 and 2016, jobs were created by Turkish manufacturing SMEs with the use of state assistance. Firm-level characteristics, including firms' age, capacity utilization rate, and innovative activities, were also found to have a substantial impact on SME employment. Originality: Our study is the first to examine the impact of incentives on employment in manufacturing SMEs in Türkiye using a micro dataset administered to 10.063 manufacturing firms by the Ministry of Industry and Technology.
Empirical evidence largely suggests that the billions of dollars state and local governments spend on targeted economic development incentive (EDI) programs are typically ineffective at stimulating broad economic activity. The continued use of EDIs by public officials has thus led scholars to investigate the role of these programs in political pandering. In this paper, we explore the relationship between EDIs and gubernatorial elections in Arkansas. Specifically, we investigate whether officials strategically allocate discretionary EDIs based on previous county-level gubernatorial election outcomes. We subsequently explore the impact of discretionary EDIs on an incumbent party’s bid for gubernatorial reelection at the county level. Our results largely suggest that public officials do not allocate EDIs based on previous election outcomes. Moreover, our results indicate that voters are unresponsive to both the quantity and magnitude of credit claiming messages.
Economic development incentives by state and local governments have been shown to have little positive economic effect on employment or growth. Using a political economy approach, we investigate the characteristics associated with fiscal conditions and public policies within a state that affect if a state uses targeted economic development incentives. Using data from 1993-2014 from Good Jobs First, we employ a Poisson model to investigate whether states with budget issues, high tax and regulatory burdens, and poorly trained labor are offering targeted incentives to potentially offset costly economic conditions. Our results indicate that unemployment rates, fiscal policy conditions, and individual income tax burden explain the granting of targeted incentives by local governments.
Why do governments compete for investment through tax incentives when there is strong evidence that such packages are inconsequential to the locational decisions of foreign firms? Previous scholarship has attributed pro-business policies such as investment incentives to factors including the structural power of business in an era of international capital mobility, fiscal competition generated through political decentralization or electoral pandering by political leaders. However, there is currently little understanding about how individuals, in their role as decision-makers within government agencies, form beliefs over how to best attract investment. Building on insights from the bureaucratic politics and behavioral economics literatures, we anticipate investment promotion professionals are more likely to view investment incentives as effective attraction tools when they have limited previous experience in the private sector, when they work for investment promotion agencies that are more integrated into the national bureaucracy, and when employee performance is evaluated based on deals closed. We test these expectations with a conjoint survey experiment of investment promotion professionals designed to uncover respondents’ beliefs over the relative importance of different components of the investment environment to firms’ locational decisions, and find substantial support for our expectations.
In September 2015, world leaders adopted the 2030 Agenda for Sustainable Development. The Sustainable Development Goals (SDGs) represent a distinctive approach to development that moves away from a narrow perspective on economic development to an integrative agenda that simultaneously pursues ecological, social and economic goals. Trade and foreign investment are important economic vectors through which many of these goals can be achieved. Much depends, however, on whether and how SDGs are incorporated in international trade and investment agreements, and in private or public sector initiatives. Policymakers are also confronted with the interdependence of the SDGs which raises difficult trade-offs between various Goals. The contributions in this book explore the penetration and trade-offs of the SDGs, drawing on a multi-disciplinary approach incorporating insights from economists, lawyers and political scientists. The book offers a valuable guide for scholars and policy makers in identifying and evaluating the complex challenges related to sustainable development.
The debate on the implication of fiscal incentives is extensive. Nevertheless, whether tax incentives succeed in stimulating firm performance remains highly controversial and has received much attention from governments and policymakers. We aimed at providing evidence about the effect of RA and other tax attributes on firm performance. Secondly, we examined if firm directorship has a moderating effect on our regression estimation. To fully understand the effects of fiscal incentives, a systematic study is needed to link RA to not just business location, employment, economic implication development but also to the overarching issues of firm performance. This research uses the Panel Least Square regression model to examine the interplay between RA and other tax attributes on firm-level performance measured by return on asset. Employing tax return data from 2007 to 2016 of corporate firms consistently claiming RA, this research affirms that RA has positively impacted the performance of incentivised firms in Malaysia. Besides RA, these incentivised firms also depend on other tax attributes such as lower effective tax rates, various tax benefits, the firm scale of operation as well as adequate tax audit monitoring. We also affirm that foreign directorship only moderates one of the tested explanatory variables used in this research, which is the effective tax rate (ETR). Overall, the evidence in this research-driven extensively by responses of the incentivised firms addresses the issue of effective incentive utilisation and tax attributes. This research could be the first to contribute evidence on the systematic assessment of RA.
This paper tracks the location trends of information technology (IT) firms in the United States for the last 4 decades to identify commonalities in place-based recruitment subsidy policies and strategies. Utilizing the Good Jobs First Subsidy Tracker database, examined are: a) specific subsidy amounts; b) the type of subsidy, based on the different federal, state, and local options and c) the source of the subsidy funds, be it state, local or federal. Using ArcGIS programming, the analysis maps out the spatial clustering for new location deals of 421 IT facilities from 1981 to 2018. The trends in location choice are used to offer a typology of sub-industry relocation classifications, based on NAICS codes. These relocation flows are then evaluated for job creation outcomes. The findings indicate that fairly remote locations seem to consistently have lower number of jobs created at much higher dollar amounts spent per new job, as compared to metro areas. A clear trend of moving away from Silicon Valley emerges, where most new jobs are created in the Northeast and Canada, as a function of the most generous subsidy packages.
Through a field experiment and audit study, we test how the electoral calendar affects the use of local economic development policies. We explore how electoral timing along with local political institutions and party composition affect local governments’ offers of investment incentives to outside firms. We legally incorporated a consultancy and, on behalf of a real investor in manufacturing, approached roughly 3,000 U.S. municipalities with inquiries. The main experimental results show no greater tendency to offer incentives for investment anticipated prior to than after elections—a null result that is estimated with high precision. Limiting the sample to municipalities that specialize in manufacturing, the relevant subgroup, suggests that election timing matters in this most likely set of locales. Some observational findings include additional evidence on how direct elections of executives and partisanship correlate with incentive offers.
This paper tracks the site location trends of information technology (IT) firms in the last 4 decades to identify commonalities in place-based recruitment subsidy policies and strategies. Utilizing the Good Jobs First Subsidy Tracker database, examined are: a) specific subsidy amounts; b) the type of subsidy, which are categorized based on the different federal, state and local options and c) the source of the subsidy funds, be it state, local or federal. Using ArcGIS programming, the analysis maps out the spatial clustering for new location deals of 421 IT facilities from 1981 to 2018. The trends in location choice are used to offer a typology of sub-industry relocation classifications, based on NAICS codes. These relocation flows are then evaluated for job creation outcomes. The findings indicate that fairly remote locations seem to consistently have low number of jobs created at much higher dollar amounts spent per new job, as compared to metro areas. A clear trend of moving away from Silicon Valley emerges, where most new jobs are created in the North East and Canada, as a function of the most generous subsidy packages.
Interstate competition for economic development has led many states to adopt targeted economic development incentive programs known as deal-closing funds. Deal-closing funds allow state officials to provide discretionary cash grants to select businesses to attract and retain economic development projects. However, whether these targeted business subsidies increase prosperity in the local economy remains unclear. The authors use evidence from Arkansas’s Quick Action Closing Fund to analyze how effective deal-closing funds are at increasing incomes and decreasing poverty. Specifically, the causal effects of the Quick Action Closing Fund on Arkansas’s county-level per capita personal income and poverty rates are estimated using a synthetic control approach. The results largely suggest that the business subsidy program fails to increase incomes and lower poverty rates over the long term, at least at the county level. These findings should serve as a caution to policy makers who wish to improve incomes and poverty rates with targeted business subsidies.
Governments actively court foreign direct investment (FDI) as a tool for economic growth and development. Despite the important role of FDI in the global economy, we do not know how this activity affects election outcomes. Crucially, state and local governments are often responsible for attracting FDI. Although FDI creates jobs, it also generates competition for domestic producers. Drawing on theories of global production, I argue that inward FDI increases the net welfare of voters in the local host economy. Therefore, new investment should increase the electoral success of incumbent parties in local elections. I use new project-level greenfield FDI data to test this claim in the context of Brazilian mayoral elections between 2004 and 2012. I find that the announcement of a new investment project increases the probability that the incumbent party wins reelection. The findings suggest a channel through which globalization directly affects mass politics at the subnational level.
Existing research has examined how the mobility of capital shapes bargains between firms and governments. The major barriers to examining bargaining behavior include the large number of dimensions to these bargains and differences in capacity and strategies firms and governments. In this paper, I examine data from a unique economic development incentive program in the state of Texas that holds almost all elements of bargaining constant, leaving only the ability of firms to walk away from a given location during the bargaining process. Using original data on the bargaining outcome as well as elite opinions, I document the extent to which firms that chose to locate in Texas made their decisions independent of this special economic development program. My findings suggest that only 15% of the firms participating in the program would have invested in another state without this incentive. The majority of these projects, and incentive dollars, were allocated to firms already committed to investing in Texas. Case studies of over 80 projects reveal that in many cases it was an open secret that companies had already committed to their investment locations prior to receiving the incentive. This implies that structure of the program encourages the overuse of incentives. © 2018 Springer Science+Business Media, LLC, part of Springer Nature
This study purports to examine whether governance networks influence cities’ use of local economic development policies, specifically business incentives, and if the role of networks changed during the Great Recession. Using American cities that responded to the International City/County Management Association’s Economic Development Survey in 2004 and 2009, hierarchical cluster analysis was employed to identify groups of cities with similar network membership patterns. The results of negative binomial regression models indicate that before the recession, the total number of actors participating in the network played a larger role in the total number of incentives provided by cities as well as the use of tax incentives. This changed in 2009 when network type emerged as the important governance-based determinant of the same variables. The results also suggest that traditional theories of economic development do not hold during times of economic and fail to explain the use of planning and labour incentives.
Economic development incentives by state and local governments have been shown to have little positive economic effect on employment or growth. Using a political economy approach, we investigate the characteristics associated with fiscal conditions and public policies within a state that affect if a state uses targeted economic development incentives. Using data from 1993-2014 from Good Jobs First, we employ a Poisson model to investigate whether states with budget issues, high tax and regulatory burdens, and poorly trained labor are offering targeted incentives to potentially offset costly economic conditions. Our results indicate that unemployment rates, fiscal policy conditions, and individual income tax burden explain the granting of targeted incentives by local governments.
The paper evaluates the impact on employment dynamics of four programs implemented in Lombardy (Italy) and providing financial incentives to firms on the period 2008-2013.
A counterfactual analysis is performed, via coarsened exact matching, that allows for multi treatment cases, distinguishing the effects of single programs and taking into account different possible levels of incentives.
Linear estimates suggest that the programs have a positive effect on short-run employment growth only when the amount of financial incentives is sufficiently high; moreover, the efficacy seems to increase when the incentives take the form of interest-rate subsidies, instead of capital grants. A non-linear representation of the policy effects, on the contrary, shows that the result of public intervention is, on the whole, negative or non-significant, and that the positive estimates in the linear models are due to small groups of outliers, which received very high subsidies. Thanks to this new methodological tool, the results of the vast majority of the literature about the impact of public subsidies on job creation are confirmed and strengthened.
Data allow for a short-run analysis only, but the results cast some doubts on the effectiveness of the programs also in a medium-long run perspective.
The Stata package ebalance implements entropy balancing, a multivariate reweighting method described in Hainmueller (2012 ) that allows users to reweight a dataset such that the covariate distributions in the reweighted data satisfy a set of specified moment conditions. This can be useful to create balanced samples in observational studies with a binary treatment where the control group data can be reweighted to match the covariate moments in the treatment group. Entropy balancing can also be used to reweight a survey sample to known characteristics from a target population.
The competition for global capital has led to interjurisdictional competition between countries, states and cities as to who can offer the most attractive incentives to firms. In this study, we examine the domestic politics of this competition by focusing on incentive use in the United States from 1999 to 2012. We define incentives as the targeted tax deductions or exemptions that are used to lure businesses into a locality. Drawing on data from municipal incentive programs, we examine how electoral competition shapes the use and oversight of targeted incentives. We find evidence that cities with elected mayors provide larger incentives than non-elected city managers by taking advantage of exogeneity in the assignment of city government institutions and a database of over 2000 investment incentives from 2010 to 2012. We also find that elected mayors enjoy more lax oversight of incentive projects than their appointed counterparts. Our results have important implications for the study of interjurisdictional competition and the role of electoral institutions in shaping economic policy.
This paper examines the job creation effects of state and local non-tax incentives for capital investment, which are relatively understudied in the literature. The paper's primary contribution is the creation of an Incentive Environment Index (IEI) from state constitutional provisions that limit and structure the ability of state and local governmental entities to aid private enterprises. Comparing estimation results across methods reveals that unobserved heterogeneity results in overstatement of policy effects. The most robust estimates indicate that increasing the ability of governments to aid private enterprise has a significant negative medium-term ef-fect on rural county employment levels but otherwise has no effect on employment levels or growth.
Self-reports figure prominently in organizational and management research, but there are several problems associated with their use. This article identifies six categories of self-reports and discusses such problems as common method variance, the consistency motif, and social desirability. Statistical and post hoc remedies and some procedural methods for dealing with artifactual bias are presented and evaluated. Recommendations for future research are also offered.
Amidst the continuing controversy over American economic development incentives, this article looks at three key effectiveness issues: Do economic development incentives encourage new investment and employment? Are these incentives targeted at economically depressed areas or economically depressed people? How costly are these incentives? For all these questions, our findings come out against traditional economic development incentives. We suggest that there is a need for a radical transformation of economic development policy in the U.S.
This study examines the response rates for surveys used in organizational research. We analyzed 1607 studies published in the years 2000 and 2005 in 17 refereed academic journals, and we identified 490 different studies that utilized surveys.We examined the response rates in these studies, which covered more than 100,000 organizations and 400,000 individual respondents. The average response rate for studies that utilized data collected from individuals was 52.7 percent with a standard deviation of 20.4, while the average response rate for studies that utilized data collected from organizations was 35.7 percent with a standard deviation of 18.8. Key insights from further analysis include relative stability in response rates in the past decade and higher response rates for journals published in the USA.The use of incentives was not found to be related to response rates and, for studies of organizations, the use of reminders was associated with lower response rates. Also, electronic data collection efforts (e.g. email, phone,web) resulted in response rates as high as or higher than traditional mail methodology. We discuss a number of implications and recommendations.
While offering tax incentives to attract foreign direct investment has become a global phenomenon and part of economic globalization in the 1990s, it also is political and controversial. But the political determinants of tax incentive policies have rarely been analyzed. This article fills this gap by making two contributions. First, I offer a theory that explains how political regime type influences tax incentive policy in the cross-national setting. Second, I evaluate the theory with a statistical analysis of 52 developing countries. The findings support my main theoretical expectations. Countries with better rule of law offer lower levels of tax incentives, and the effect is stronger for more democratic countries. In democracies, FDI inflows are negatively associated with the level of incentives. Autocratic regimes maintaining restrictions on foreign entry adopt lower levels of incentives than those without restrictions. I discuss the policy implications of these findings.
This article estimates the county-level impact of the Michigan Economic Growth Authority (MEGA) Credit targeted tax incentives to firms from 1995 through 2002. The authors employ a fixed effects instrumental variable model with spatial and time autocorrelation function tested on aggregate income, employment, the unemployment rate, and sectoral activity in manufacturing, wholesale, and construction. The authors find no impacts of the MEGA credit program on county-level aggregate employment, unemployment rates, wages, or incomes. Furthermore, there is no impact of manufacturing or warehousing credits on employment or wages in these sectors. The authors do find that MEGA credits produce a transient impact on construction employment (a drop in construction wages is statistically but not economically significant). The construction impact of MEGA is an estimated $ 123,000 investment per construction job. Generally, 75% of these jobs last for I year, with the remaining 25% lasting only into the second year.
WALKER R. and GREENSTREET D. (1990) The effect of government incentives and assistance on location and job growth in manufacturing, Reg. Studies 25, 13--30. Many states and local development authorities attempt to create jobs through the application of incentive and assistance programmes meant to attract industry, to encourage entrepreneurship, and to promote the growth of existing establishments. Despite these efforts, which in many instances are quite costly, little is known about the efficacy of particular programmes. This paper addresses the impact of such programmes by presenting the results of an econometric analysis based on micro data from an extensive mail and telephone survey of 540 new manufacturing plants in the Appalachian region. A components of growth approach is taken, in which two particular components are considered: the job growth attributable to location decisions of new start-ups; and that stemming from the expansion of existing establishments. It is shown that incentive offerings are decisive to a plant's final choice of locality, while public programmes appear to have little effect on in situ expansion. However, management quality emerges as an important variable in explaining plant expansion. The paper concludes with a discussion of the relevance of the findings and methodology to regional development policy. WALKER R. et GREENSTREET D. (1990) L'effet des incitations et des aides gouvernementales sur la localisation et la croissance de l'emploi dans l'industrie, Reg. Studies 25, 13--30. Beaucoup d'états et de collectivités chargées de la promotion économique local essaient de créer des emplois par des actions d'incitation et d'aide destinées à séduire l'industrie, à encourager l'esprit d'entreprise, et à promouvoir le développement d'établissements existants. En dépit de ces efforts, qui souvent coûtent assez cher, on ne sait pas beaucoup de l'efficacité des actions menées. Cet article aborde l'impact de telles actions en présentant les résultats d'une analyse économétrique fondée sur des données détaillées provenant d'un mailing et d'une prospection téléphonique approfondis de 540 nouveaux établissements industriels dans la région appalachienne. On considère les composantes de croissance et en particulier les deux composantes suivantes: la croissance de l'emploi due à la localisation des nouvelles entreprises, et celle qui remonte au développement des entreprises existantes. On démontre que la disponibilité des incitations s'annonce décivise dans le contexte du choix de localisation tandis que les actions publiques ont peu d'impact sur le développement sur place. Toujours est-il que la qualité du management s'avère une variable importante pour expliquer le développement des établissements. L'article finit par discuter de la portée des résultats et de la méthodologie pour la politique d'aménagement du territoire. WALKER R. und GREENSTREET D. (1990) Die Auswirkung von Regierungsanreizen und- beihilfen auf Standort und Stellenzuwachs in der herstellenden Industrie, Reg. Studies 25, 13--30. Viele staatliche und örtliche Entwicklungsbehörden versuchen, das Wachstum bereits bestehender Firmen und die Schaffung von Stellen mit Hilfe von Anreiz- und Hilfs-programmen zu fördern, die Industrie anziehen und Unternehmertum ermutigen sollen. Trotz dieser Bemühungen, die sich in vielen Fällen als recht kostenverschlingend erzeigen, ist wenig über die Wirksamkeit einzelner Programme bekannt. Dieser Aufsatz beschäftigt sich mit der Wirkung solcher Programme mittels Darstellung der Ergebnisse einer ökonometrischen Analyse, die auf Mikrodaten einer ausgedehnten Brief- und Telefonumfrage unter 540 neuen Herstellungsbetrieben im Appalachengebiet beruht. Eine Untersuchung von Komponenten des Wachstums beschäftigt sich vor allem mit den beiden folgenden Komponenten: der Stellenzunahme infolge von Standortentscheidungen seitens neuer Firmengründungen und derjenigen, die von der Expansion bereits bestehender Firmen herrührt. Es wird gezeigt, dass Anreizangebote die endgültige Standortwahl eines Betriebes entscheidend beeinflussen, während öffentliche Programme anscheinend wenig Einfluss auf Expansion am Orte ausüben. Die Qualität der Führungskräfte erweist sich jedoch als wichtige Variable bei der Erklärung der Betriebsexpansion. Der Aufsatz schliesst mit einer Diskussion der Bedeutung der Befunde und Methodik für die regionale Entwicklungspolitik.
Using a firm-level panel data set this paper investigates the impact of taxation on the decision of German multinationals to hold or establish a subsidiary in other European countries or abroad. Taking account of unobserved local characteristics as well as firm-specific preferences for potential locations, the results confirm significant effects of tax incentives, market size, and of labor cost on cross-border location decisions. In accordance with Devereux and Griffith (1998) we find that the marginal effective tax rate has no predictive power for location decisions. However, the results indicate a considerably weaker predictive power of the effective average tax rate as compared to the statutory tax rate. Copyright Springer Science + Business Media, LLC 2007
The use of local economic development incentives within a metropolitan area has undergone less analysis than incentives that attempt to alter interregional business location decisions. This is unfortunate because other factors that influence where business resides are constant across cities in a metropolitan area and a properly used incentive is more likely to alter a business location decision. To comment on these issues, we use a simultaneous equation model to conduct regression analyses of panel data from 112 cities in the Detroit metropolitan area. We find that only certain forms of local incentives, at certain times, exert the expected positive influence on the local value of commercial and manufacturing property. We tie these findings to issues related to the redistribution of economic activity from the core to the periphery in U.S metropolitan areas and conclude with policy suggestions on the future use of local incentives in a metropolitan area. 3 An important policy issue i...
We discuss a method for improving causal inferences called ‘‘Coarsened Exact Matching’’ (CEM), and the new ‘‘Monotonic Imbalance Bounding’’ (MIB) class of matching methods from which CEM is derived. We summarize what is known about CEM and MIB, derive and illustrate several new desirable statistical properties of CEM, and then propose a variety of useful extensions. We show that CEM possesses a wide range of statistical properties not available in most other matching methods but is at the same time exceptionally easy to comprehend and use. We focus on the connection between theoretical properties and practical applications. We also make available easy-to-use open source software for R, Stata, and SPSS that implement all our suggestions.
Strategy research often aims to empirically establish a causal relationship between an independent variable and a dependent variable such as firm performance. For many important strategy research questions, however, traditional empirical techniques are not sufficient to establish causal effects with high confidence. We propose that field experiments have potential to be used more widely in strategy research, leveraging methodological innovations from other disciplines to address persistent puzzles in the literature. We first review the advantages and disadvantages of using field experiments to answer questions in strategy. We define two types of experiments, “strategy field experiments” and “process field experiments,” and present an original example of each variety. The first study explores the liability of foreignness and the second study tests theories regarding corporate culture.
Employment tax credits have become one of the primary tools of state economic development policy. A recurring question is whether these credits create jobs that would not have been created in their absence. This paper provides estimates of the employment impact of such credits by comparing the employment change in eligible firms that participate in employment tax credit programs with eligible firms that do not participate in such programs. Results from a switching regression model indicate that firms taking Georgia's Jobs Tax Credit created 23 to 28 percent more jobs than eligible firms not taking the credit between 1993 and 1995. The cost per job is 2680 over the 1993 to 1995 period. While the maximum number of jobs potentially attributable to the program is small, the cost per job is also low especially when compared with firm-specific incentive packages.
The authors developed hypotheses about the effectiveness of response rate techniques for organizational researchers surveying executives. Using meta-analytic procedures to test those hypotheses, the authors analyzed response rate data from 231 studies that surveyed executives and appeared in top management journals from 1992 to 2003. They found mean response rates to be declining over the period, yielding an overall 32% rate. Of the various methods suggested to increase response rates in other populations, none were found to be effective for executives. However, topical salience and sponsorship by an organization or person in the executive's social networks did bring about response rate increases. The authors provide recommendations about what (not) to do when trying to collectoriginal data from members of a firm's upper echelons.
Although policy evaluations have raised significant concerns about the effectiveness of individual incentives such as tax abatements and special taxing districts, they beg the question of whether, in the right combination, these tools might actually work. This research focuses on this question: Are some incentives more effective in particular combinations as they would normally be applied in reality? Based on an assessment of five widely used economic development programs in the state of Michigan, the research concludes that even in combination, many commonly used incentives have no relationship to the economic health of city residents. Programs that include performance guarantees, particularly related to jobs, appear promising. For many, particularly smaller, cities offering no economic development incentives also appears to be a promising course of action.
Despite the prevalence of governmental action devised to foster firms and industries, the link between industrial policy (IP) and competitive advantage has received scant attention in strategic management. I propose a model where such a link is mediated by the accumulation and churning of local resources and capabilities. I also introduce the concept of support-adjusted sustainable competitive advantage (SASCA), which occurs if a firm's observed performance is superior to the expected performance of competitors had they received the same array of policies. I argue that achieving SASCA through IP is a difficult endeavor and requires the interplay of three conditions: insertion in global production networks, geographical specificity, and governmental capability. Thus, the model expands the potential determinants of competitive advantage into the context of governmental intervention. Copyright © 2013 John Wiley & Sons, Ltd.
This article reviews the tax study literature to assess the state of knowledge about the relationship among taxes, related factors, and economic growth as well as the use of tax incentives to influence business locations. Although tax studies have become increasingly sophisticated, especially during the past decade, they have tended to yield conflicting results regarding whether taxes matter. Some studies focus on costs and benefits of tax incentives, but few look to see whether public monies could have been better spent or whether tax incentives were economically justified. Tax studies offer little guidance to policy makers concerned about fine-tuning tax rates or tax offerings and effectively employing tax incentives as economic development tools.
The vast majority of states have implemented some version of enterprise zone (EZ) programs, which geographically target economic development efforts to revitalize distressed areas. While EZs have been studied extensively, there is little evidence that they have succeeded. Despite this, the number of programs, the number of EZs designated, and the land area covered by these zones have grown over time. This essay reviews the research on state EZ programs and explores why it has not had a greater influence on policy. One explanation we discuss is that the research has not been made accessible enough to policy makers and their staffs. Another explanation we posit is that political decision making that guides policy on EZ programs is influenced by many actors and sources of information not just the academic research literature. The essay discusses how the establishment or expansion of EZ programs may be encouraged by EZ businesses and landlords engaging in rent seeking behavior. The essay concludes by providing some recommendations regarding how the research community can make its work more relevant for state and local policy makers and how policy makers can become better consumers of evaluative research when implementing and refining programs.
This paper considers two empirical questions about tax incentives: (1) are incentives used as tools of tax competition and (2) how effective are incentives in attracting investment? To answer these, we prepared a new dataset of tax incentives in over 40 Latin American, Caribbean and African countries for the period 1985–2004. Using spatial econometrics techniques for panel data to answer the first question, we find evidence for strategic interaction in tax holidays, in addition to the well-known competition over the corporate income tax rate. We find no evidence, however, for competition over investment allowances and tax credits. Using dynamic panel data econometrics to answer the second question, we find evidence that lower corporate income tax rates and longer tax holidays are effective in attracting FDI, but not in boosting gross private fixed capital formation or growth.
Since the mid-1990s, Brazil has become one of the main recipients of foreign direct investment in the automobile sector. As in the late 1950s and early 1960s, world car manufacturers are investing heavily in the building of new car plants. The renewed interest of car companies in Brazil is a result of the huge and expanding internal market and the relatively stable macroeconomic panorama of the mid-1990s. However, and in contrast to what happened in the 1950s and 1960s, most new car plants are being located outside the São Paulo metropolitan area, the traditional hub of the Brazilian motor industry. Although some argue that, among other reasons, this is the result of lower labour costs elsewhere in Brazil and of improved infrastructure in the country, this article aims to demonstrate that the recent decentralization of the Brazilian motor industry is basically linked to perverse territorial competition among Brazilian states. This sort of territorial competition - known in Brazil as the 'fiscal wars' - represents a pure waste of resources, both for the states engaged in them, as well as for Brazil as a whole.
The use of tax incentives is widespread even though the available empirical evidence on the cost-effectiveness of such incentives in stimulating investment is highly inconclusive. This paper is primarily intended as a primer on the use of tax incentives for policy makers, especially those in developing countries. It discusses the objectives, cost-effectiveness, and transparency of implementing tax incentives; assesses the comparative merits of alternative forms of such incentives; and provides a review of the empirical literature. Its main conclusions are that the justification for the use of tax incentives should be limited to the rectification of market failures, and that the preferred form of tax incentives are those that provide for faster recovery of investment costs.
An annual panel of employment at the census tract level for the Atlanta region is used to estimate the change in a tract's share of regional employment as a function of a variety of tax incentive programs, different transportation infrastructure investments, and crime. The results show that neighborhood-based property tax abatements, job tax credits, and highway improvements increase a tract's employment share. Higher crime is found to reduce employment share.
This paper exploits the exogenous variation of U.S. state enterprise zone policies to estimate the impact of geographically-targeted tax incentives on a number of dimensions of local economic growth. The econometric analysis uses establishment-level data to sort out growth outcomes into gross flows separately accounted for by new, existing, and vanishing establishments in the target areas. Results offer empirical evidence with strong external validity to support specific policy recommendations and show that the impacts of the incentives have more complex dynamics than those revealed by the null mean impact estimates obtained from analyzing net growth outcomes.
We study Japanese investments between 1980 and 1992 to assess the effectiveness of US state promotion efforts in light of strong agglomeration effects in Japanese investment. The provision of foreign trade zones, lower taxes, and job-creation subsidies have statistically significant effects on the location of investment. Simulations indicate that unilateral withdrawal of promotion would have caused individual states to lose substantial amounts of Japanese investment. However, because state promotional policies tended to offset each other, their impact on the geographic distribution of Japanese investment appears small.
We use new establishment-level data and geographic mapping methods to improve upon evaluations of the effectiveness of state enterprise zones, focusing on California's program. Because zone boundaries do not follow census tracts or zip codes, we created digitized maps of original zone boundaries and later expansions. We combine these maps with geocoded observations on most businesses located in California. The evidence indicates that enterprise zones do not increase employment. We also find no shift of employment toward the lower-wage workers targeted by enterprise zone incentives. We conclude that the program is ineffective in achieving its primary goals.
Using U.S. state-level data we show that agglomeration externalities influence the level of foreign-invested capital in a location. Our empirical model allows the separation of agglomeration effects from the rate of capital stock adjustment, two forces that previous research has conflated. We estimate an agglomeration elasticity of investment of 0.11 to 0.15 with respect to same-source-country investment, lower than previous estimates. We also investigate the influence of state policies and find that although general investment incentives do not affect the location of FDI, targeted policies such as unitary taxation and state foreign offices influence investment. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
We use a new database, the National Establishment Time Series (NETS), to revisit the debate about the role of small businesses in job creation. Birch (e.g., 1987) argued that small firms are the most important source of job creation in the U.S. economy. But Davis et al. (1996a) argued that this conclusion was flawed, and based on improved methods and using data for the manufacturing sector, they concluded that there was no relationship between establishment size and net job creation. Using the NETS data, we examine evidence for the overall economy, as well as for different sectors. The results indicate that small firms and small establishments create more jobs, on net, although the difference is much smaller than what is suggested by Birch's methods. Moreover, in the recent period we study, a negative relationship between establishment size and job creation holds for both the manufacturing and services sectors.
The siting of a large, new firm is often presumed to give rise to significant economic and tax benefits to the community of location. This presumption serves as the basis for the granting of lucrative economic development incentives to footloose businesses. This article examines whether large, mobile firms generate significant net benefits for the region of location. Panel data and nonrandom estimation techniques are applied to a primary database of large firms that made location decisions in the 1980s to explore the impact of location on regional economic performance. The empirical analysis explores different treatment regions (both effects within the county and the metropolitan statistical area [MSA] of location) and different control regions. The results show that large firms fail to produce significant net benefits for their host communities, calling into question the high-stakes bidding war over jobs and investment.
Increasingly, local governments compete by offering substantial subsidies to industrial plants to locate within their jurisdictions. This paper uses a novel research design to examine the consequences of successfully bidding for a plant on county-level labor earnings, property values, and public finances. Each issue of the corporate real estate journal Site Selection includes an article titled The Million Dollar Plant that describes how a large plant decided where to locate. These articles report the county where the plant chose to locate (i.e., the 'winner'), as well as the one or two runner-up counties (i.e., the 'losers'). The losers are counties that have survived a long selection process, but narrowly lost the competition. We use these revealed rankings of profit-maximizing firms to form a counterfactual for what would have happened in the winner counties in the absence of the plant opening. We find that a plant opening is associated with a 1.5% trend break in labor earnings in the new plant's industry in winning counties (relative to losing ones) after the opening of the plant (relative to the period before the opening). Property values may provide a summary measure of the net change in welfare, because the costs and benefits of attracting a plant should be capitalized into the price of land. We find a positive, relative trend break of 1.1% in property values. Further, we fail to find any deterioration in local governments' financial position. Overall, the results undermine the popular view that the provision of local subsidies to attract large industrial plants reduces local residents' welfare.
This paper examines the effects of state economic development incentives on the growth of 366 Ohio manufacturing and nonmanufacturing establishments that launched major expansions between 1993 and 1995. Growth is measured as the actual employment change that occurred in these establishments and as the employment growth announced when expansions were launched. Empirical findings indicate that incentives have very little (or even a negative) effect on actual growth and they have a substantial positive effect on announced growth. Findings also suggest that establishments that received incentives overestimated their announced employment targets more than establishments that did not receive incentives. Copyright 2002 Blackwell Publishers
This paper reviews the research literature relevant to economic development incentives provided by state and local governments, and recommends reforms in these incentives. I argue that the main problem with current incentive policies is that state and local governments often provide incentives that are not in the best interest of that state or local area, for example that are excessively costly per job created, or that provide jobs that do not improve the job opportunities of local residents. I suggest that reforms should be "bottom-up" rather than "top-down." Regulation of incentives by the federal government may prevent both desirable and undesirable incentives. "Bottom-up" reforms would include more information on incentive offers, a budget constraint on the volume of incentives, stronger standards for job quality and job accessibility for the local unemployed, and better benefit-cost analyses of incentives. Copyright 2005 Blackwell Publishing Ltd..
Italy's Law 488/1992 allows firms willing to invest in lagging areas to receive a public subsidy. By comparing subsidized firms with firms with rejected applications, this paper evaluates whether the program made investments possible that otherwise would not have been made. We find evidence that financed firms brought forward investment projects originally planned for the post-intervention period to take advantage of the incentives. We also find some support that subsidized firms may have taken some of the investment opportunities that unsubsidized firms would have exploited in the absence of incentives.
Foreign direct investment (FDI) is an important element of the global economy and a central component of economic development strategies of both developed and developing countries. Numerous scholars theorize that the economic benefits of attracting multinational corporations come at tremendous political costs, arguing that democratic political systems attract lower levels of international investment than their authoritarian counterparts. Using both cross-sectional and time-series cross-sectional tests of the determinants of FDI for more than 100 countries, I generate results that are inconsistent with these dire predictions. Democratic political systems attract higher levels of FDI inflows both across countries and within countries over time. Democratic countries are predicted to attract as much as 70 percent more FDI than their authoritarian counterparts. In a final empirical test, I examine how democratic institutions affect country credibility by empirically analyzing the link between democracy and sovereign debt risk for about eighty countries from 1980 to 1998. These empirical tests challenge the conventional wisdom on the preferences of multinationals for authoritarian regimes.Special thanks to Geoffrey Garrett for his extensive comments on this project and a number of other related projects on the determinants of foreign direct investment. I would also like to thank Nancy Brune, Jose Cheibub, Lilach Gilady, Witold Henisz, Charles Martin, Fiona McGillivray, Bruce Russett, Andy Sobel, Jason Sorens, Thomas K nig, Leonard Wantchekon, James Vreeland, the editors of IO, and three anonymous reviewers for helpful comments and suggestions. Thanks to Nancy Brune for making her capital account liberalization data available.
Border War: Kansas City
- M W Bishop
Megadeals: The Largest Economic Development Subsidy Packages Ever Awarded by State and Local Governments in the United States
- P Mattera
- K Tarczynska
- G Leroy
People, Places and Public Policy: Some Simple Welfare Economics of Local Economic Development Programs
- P Klein
- E Moretti
Paying Taxes to Their Bosses: How a Growing Number of States Subsidize Companies with the Withholding Taxes of Workers
- P Mattera
- K Tarczynska
- L Mcllvaine
- T Cafcas
- G Leroy
Assessing the Incidence and Efficiency of a Prominent Place Based Policy
- M Busso
- J Gregory
- P M Kline
Money-Back Guarantees for Taxpayers: Clawbacks and Other Enforcement Safeguards in State Economic Development Subsidy Programs
- P Mattera
- T Cafcas
- L Mcilvaine
- A Seifter
- K Tarczynska