Tax Subsidy Information and Local Economic Effects

82 Pages Posted: 15 Nov 2019 Last revised: 14 Sep 2022

See all articles by Lisa De Simone

Lisa De Simone

University of Texas at Austin

Rebecca Lester

Stanford Graduate School of Business

Aneesh Raghunandan

London School of Economics

Date Written: September 14, 2022

Abstract

We examine if the effectiveness of business tax subsidies varies based on whether subsidies are subject to state disclosure laws. State and local business incentives for investment and employment have tripled in size over the past thirty years (Bartik, 2019), now amounting to over 40 percent of total state corporate tax revenues (Slattery and Zidar, 2020). However, transparency problems inhibit clear assessments of whether subsidies achieve their intended outcomes. We study the role of subsidy disclosure laws. We examine both internal disclosure laws, which mandate subsidy reporting by the granting state agency to other state oversight agencies, and external disclosure laws, which mandate reporting to the public. We find positive effects of subsidies on local employment when subsidies are subject to internal disclosure laws; by implementing such regimes, governments could forego 1.2-1.7 subsequent subsidies per county, saving \$419.0-\$593.5 million in aggregate. In contrast, we observe little effect of external disclosure, which we show is due to governments either substituting to other incentive grants or posting stale information that impedes public monitoring. We contribute to the government disclosure literature by demonstrating the real employment effects of internal government disclosures, and we provide policy-relevant evidence about the conditions under which external disclosure regimes facilitate public monitoring. The evidence directly informs the increasing number of states implementing subsidy disclosure regimes.

Keywords: Business taxes, Subsidies, Employment, Local information

JEL Classification: G38, H25, M40, M48

Suggested Citation

De Simone, Lisa and Lester, Rebecca and Raghunandan, Aneesh, Tax Subsidy Information and Local Economic Effects (September 14, 2022). Available at SSRN: https://ssrn.com/abstract=3482207 or http://dx.doi.org/10.2139/ssrn.3482207

Lisa De Simone (Contact Author)

University of Texas at Austin ( email )

2110 SPEEDWAY
Stop B6400
Austin, TX 78705
United States

HOME PAGE: http://www.lisa-desimone.com

Rebecca Lester

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

HOME PAGE: http://www.gsb.stanford.edu/faculty-research/faculty/rebecca-lester

Aneesh Raghunandan

London School of Economics ( email )

United Kingdom

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