Political Connections and Government-Awarded Economic Incentives: US State-level Evidence

80 Pages Posted: 1 Mar 2018 Last revised: 19 Dec 2019

See all articles by Daniel Aobdia

Daniel Aobdia

Northwestern University - Kellogg School of Management

Allison Koester

Georgetown University

Reining Petacchi

Georgetown University - Department of Accounting and Business Law

Date Written: December 18, 2019

Abstract

We examine the role of political connections in US state government-awarded corporate economic incentives, and whether a role (if present) is cause for constituent concern. We find that companies are more likely to receive an incentive award in a politically connected state and this association is stronger when politicians’ motives appear to be self-serving. Although equity investors react more positively to announcements of incentives awarded to politically connected companies, politically connected awards are associated with lower local future economic growth. Our analyses suggest that government incentives awarded to politically connected firms are a less effective allocation of taxpayer funds.

Keywords: government economic incentives; corporate political connections; economic growth

JEL Classification: D72; H25; H71; M48

Suggested Citation

Aobdia, Daniel and Koester, Allison and Petacchi, Reining, Political Connections and Government-Awarded Economic Incentives: US State-level Evidence (December 18, 2019). Available at SSRN: https://ssrn.com/abstract=3127038 or http://dx.doi.org/10.2139/ssrn.3127038

Daniel Aobdia

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL 60208
United States

Allison Koester

Georgetown University ( email )

McDonough School of Business
Washington, DC 20057
United States
202.687.6461 (Phone)

HOME PAGE: http://explore.georgetown.edu/people/apk29/

Reining Petacchi (Contact Author)

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

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