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

77 Pages Posted: 1 Mar 2018 Last revised: 4 Dec 2018

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 1, 2018

Abstract

This paper examines whether corporate political connections are associated with state government-awarded corporate economic incentives, and whether an association is cause for constituent concern. Economic incentives are predominantly in the form of tax credits, rebates, and abatements. We test our research questions using a novel dataset of more than 1,000 publicly traded companies awarded at least one state-level economic incentive during a 15-year time period (2000 through 2014). We find that politically connected companies are nearly four times more likely to receive an incentive award. When these politically connected companies receive an award, the incentive is nearly fifty percent more valuable. The positive association between political connections and economic incentive awards is stronger when the connected company has closer ties to a state legislative party vulnerable to losing its majority position, and when state political corruption is greatest. We also find evidence that county-level future economic growth is greater when incentives are awarded to politically unconnected companies. Thus, our analyses indicate that taxpayer funds are disproportionately awarded to politically connected companies, even though these awards are a less effective use of taxpayer funds.

Keywords: government subsidies, corporate political connections, quid pro quo

Suggested Citation

Aobdia, Daniel and Koester, Allison and Petacchi, Reining, Political Connections and Government-Awarded Economic Incentives: State-level Evidence (December 1, 2018). 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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