Competing for global capital or local voters? The politics of business location incentives
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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.
KeywordsIncentives Economic development Pandering Local government
Thanks to Benjamin Crisman, Lillian Frost, Mi Jeong Shin and Kathryn Sproule for excellent research assistance and to Brady Baybeck, Adam Bonica, Randy Calvert, Jim Clinger, Bill Lowry, Gary Miller and Jessica Trounstine for comments and suggestions. Thanks to Kimberly Nelson for sharing her data with us. The Weidenbaum Center and Center for New Institutional Social Sciences at Washington University in St. Louis provided financial support for this project.
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