Political Connections and Government-Awarded Economic Incentives: US State-level Evidence
80 Pages Posted: 1 Mar 2018 Last revised: 19 Dec 2019
Date Written: December 18, 2019
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: Suggested Citation