Pass the Bucks: Investment Incentives as Political Credit-Claiming Devices Evidence from a Survey Experiment

50 Pages Posted: 2 Sep 2010

See all articles by Nathan M. Jensen

Nathan M. Jensen

Washington University in St. Louis - Department of Political Science

Edmund J. Malesky

Duke University, Political Science

Mariana Medina

Washington University in St. Louis

Ugur Ozdemir

Washington University in St. Louis

Date Written: June 31, 2010

Abstract

Both countries and subnational governments commonly engage in competition for mobile capital, offering generous location incentives to attract investment. The use of tax incentives is a paradox, whereby fiscally strained governments offer lucrative tax treatment to firms, yet the economics research has consistently shown tax incentives have little impact on the investment decisions of businesses. In this paper we construct a formal model of firm specific tax incentives that focuses on how politicians take credit or minimize blame for firms’ investment decisions. We test the empirical implications of this model using an internet survey, which employs a randomized experiment to test how voters evaluate the performance of incumbent U.S. governors. Our findings illustrate the key political benefit of offering tax incentives for politicians. Politicians can use these incentives to take credit for investment flowing into their districts.

Keywords: FDI, Tax Incentives, MNC, multi-national corporations, survey experiment, US governors

JEL Classification: F2, F23, H2, H21

Suggested Citation

Jensen, Nathan M. and Malesky, Edmund J. and Medina, Mariana and Ozdemir, Ugur, Pass the Bucks: Investment Incentives as Political Credit-Claiming Devices Evidence from a Survey Experiment (June 31, 2010). Available at SSRN: https://ssrn.com/abstract=1669771 or http://dx.doi.org/10.2139/ssrn.1669771

Nathan M. Jensen

Washington University in St. Louis - Department of Political Science ( email )

219 Eliot Hall
St. Louis, MO 63130
United States

Edmund J. Malesky (Contact Author)

Duke University, Political Science ( email )

140 Science Drive (Gross Hall), 2nd floor
Duke University Mailcode: 90204
Durham, NC 27708-0204
United States

Mariana Medina

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

Ugur Ozdemir

Washington University in St. Louis ( email )

One Brookings Drive
Campus Box 1208
Saint Louis, MO MO 63130-4899
United States

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