Tax Subsidy Information and Local Economic Effects

61 Pages Posted: 15 Nov 2019 Last revised: 16 Mar 2021

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: March 15, 2021

Abstract

We examine whether the relation between business tax subsidies and local economic activity varies based on publicly available subsidy information. State and local business incentives 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, the subsidy grant process is notoriously opaque, and transparency problems inhibit clear assessments about whether subsidies achieve their intended outcomes. We find that public information about these incentives – measured based on the existence of state-level subsidy disclosure initiatives, the online publication of subsidy details, and ex ante job commitment disclosures – plays a critical role in subsidy effectiveness. Across all three measures, we observe that the positive association between subsidies and establishments occurs only in those counties with greater information. However, we find that employment effects occur only when the subsidies are accompanied by ex ante job commitments, signaling heterogeneity in the extent to which information facilitates job and wage growth. Our large-scale empirical analysis on the role of public subsidy information provides evidence of an important factor previously discussed, but not empirically tested, in public economics. Furthermore, we offer policy-relevant evidence for 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 (March 15, 2021). 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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