Bidding for Business: Tax Discrimination as Local Industrial Policy

26 Pages Posted: 10 Jan 2020

See all articles by Megan Lawrence

Megan Lawrence

Vanderbilt University - Strategy and Business Economics

Felix Oberholzer-Gee

Harvard University

Victor Canalog

Reis, Inc.

Date Written: April 20, 2015

Abstract

Local and state governments routinely compete for economic activity by offering firms tax breaks and subsidies. While we have empirical evidence to show that large industrial plants produce significant local benefits, we know little about the type of firm that local governments most seek to attract. To further our understanding of local tax discrimination, we conduct a randomized field experiment across 312 communities in the United States. We observe how each of the governments in our sample adjusts its property tax in response to variation in firm characteristics and local economic conditions. We find that our towns pursue a systematic local industrial policy whose goal is to attract manufacturing jobs and work for unskilled labor. Surprisingly, we find no evidence that towns seek to generate rents targeted at the current local population. Local tax policy also appears to disregard agglomeration effects and concerns over industrial diversification.

Suggested Citation

Lawrence, Megan and Oberholzer-Gee, Felix and Canalog, Victor, Bidding for Business: Tax Discrimination as Local Industrial Policy (April 20, 2015). Available at SSRN: https://ssrn.com/abstract=3506831 or http://dx.doi.org/10.2139/ssrn.3506831

Megan Lawrence (Contact Author)

Vanderbilt University - Strategy and Business Economics ( email )

Nashville, TN 37203
United States

HOME PAGE: http://www.meganllawrence.com

Felix Oberholzer-Gee

Harvard University

1875 Cambridge Street
Cambridge, MA 02138
United States

Victor Canalog

Reis, Inc.

5 West 37th Street
New York, NY 10018
United States

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