The Politics and Economics of Corporate Subsidies in the 21st Century

Abstract

Scholars often focus on economic competition between the states as the primary determinant of economic development policies, including direct subsidy spending. New data from the Good Jobs First Subsidy Tracker shows that there are large differences in subsidy spending across the states and that large, established firms are the disproportionate beneficiaries of subsidy spending. In light of this new evidence, we argue that the political power of business within the state is an important determinant of state economic development policy. Campaign contributions from industry serve to create a political presence that reinforces their structural power and has the potential to capture state governments. We theorize that states may be strictly captured or culturally captured, in which the state acts to protect business without being intentionally corrupted by business. We test our hypotheses using data from the Good Jobs First Subsidy Tracker database, finding that more contributions from business lead to more subsidy spending by the state. We conclude that subsidies are the result of the confluence of politics and economics, warranting more attention by scholars because of the practical policy and theoretical implications.

Keywords: economic development, state politics, subsidies, campaign contributions, regulatory capture