Tax Subsidy Information and Local Economic Effects

Conditionally accepted, Journal of Accounting Research

83 Pages Posted: 15 Nov 2019 Last revised: 24 Oct 2024

See all articles by Lisa De Simone

Lisa De Simone

University of Texas at Austin

Rebecca Lester

Stanford Graduate School of Business

Aneesh Raghunandan

Yale School of Management

Date Written: October 24, 2024

Abstract

We examine if the effectiveness of business tax subsidies varies based on state disclosure laws. The prior accounting literature on government disclosure documents substantial variation in the quality of such disclosures, raising questions about their effectiveness for monitoring. State and local business subsidies for investment and employment have tripled in size over the past thirty years (Bartik, 2019), but transparency problems inhibit clear assessments of whether subsidies achieve their intended outcomes. 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 types of incentives 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.

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 (October 24, 2024). Conditionally accepted, Journal of Accounting Research, 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

Yale School of Management ( email )

165 Whitney Ave
New Haven, CT 06511

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