Competing for Global Capital or Local Voters? The Politics of Business Location Incentives

From Nathan Jensen, Edmund Malesky, Matthew Walsh:

The competition for global capital has led to wars between countries, states, and cities, as to who can offer the most attractive fiscal incentives to firms. In this study, we examine the domestic politics of this competition by focusing on incentive use in the United States from 1999-2012. Drawing on data from local tax incentive programs, we examine how electoral competition shapes the use and oversight of targeted incentives. Taking advantage of exogeneity in the assignment of city government institutions and a database of over 2,000 investment incentives from 2010-2012, we find evidence that cities with elected mayors provide more and bigger incentives than non-elected city managers. Probing the mechanism, we find that elected mayors enjoy more lax oversight of incentive projects than their appointed counterparts. Our results have important implications for the study of fiscal wars and the role of electoral pandering in the misuse of economic development funds.

About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar.
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