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Competing for global capital or local voters? The politics of business location incentives

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  • Nathan Jensen
  • Edmund Malesky
  • Matthew Walsh

Abstract

The competition for global capital has led to interjurisdictional competition between countries, states and cities as to who can offer the most attractive incentives to firms. In this study, we examine the domestic politics of this competition by focusing on incentive use in the United States from 1999 to 2012. We define incentives as the targeted tax deductions or exemptions that are used to lure businesses into a locality. Drawing on data from municipal incentive programs, we examine how electoral competition shapes the use and oversight of targeted incentives. We find evidence that cities with elected mayors provide larger incentives than non-elected city managers by taking advantage of exogeneity in the assignment of city government institutions and a database of over 2000 investment incentives from 2010 to 2012. We also find that elected mayors enjoy more lax oversight of incentive projects than their appointed counterparts. Our results have important implications for the study of interjurisdictional competition and the role of electoral institutions in shaping economic policy. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Nathan Jensen & Edmund Malesky & Matthew Walsh, 2015. "Competing for global capital or local voters? The politics of business location incentives," Public Choice, Springer, vol. 164(3), pages 331-356, September.
    • Handle: RePEc:kap:pubcho:v:164:y:2015:i:3:p:331-356
    DOI: 10.1007/s11127-015-0281-8
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    Cited by:

    1. Dong, Qingkai & Raghunandan, Aneesh & Rajgopal, Shivaram, 2023. "When do firms deliver on the jobs they promise in return for state aid?," LSE Research Online Documents on Economics 120058, London School of Economics and Political Science, LSE Library.
    2. Leslie Johns & Rachel L. Wellhausen, 2021. "The price of doing business: Why replaceable foreign firms get worse government treatment," Economics and Politics, Wiley Blackwell, vol. 33(2), pages 209-243, July.
    3. Shane Sanders & Joel Potter & Justin Ehrlich & Justin Perline & Christopher Boudreaux, 2021. "Informed voters and electoral outcomes: a natural experiment stemming from a fundamental information-technological shift," Public Choice, Springer, vol. 189(1), pages 257-277, October.
    4. Hopp, Daniel & Kriebel, Michael, 2019. "The political economy of interregional competition for firms," Regional Science and Urban Economics, Elsevier, vol. 79(C).
    5. Daniel Hopp & Michael Kriebel, 2016. "The political economy of interregional competition for firms," CQE Working Papers 5616, Center for Quantitative Economics (CQE), University of Muenster.
    6. Peter Calcagno & Frank Hefner, 2018. "Targeted Economic Incentives: An Analysis of State Fiscal Policy and Regulatory Conditions," The Review of Regional Studies, Southern Regional Science Association, vol. 48(1), pages 71-91, Spring.
    7. Aycan Katitas & Sonal Pandya, 2024. "Investment incentives attract foreign direct investment: evidence from the great recession," Public Choice, Springer, vol. 200(1), pages 323-345, July.
    8. Hopp, Daniel & Kriebel, Michael, 2016. "The political economy of interregional competition for firms," VfS Annual Conference 2016 (Augsburg): Demographic Change 145693, Verein für Socialpolitik / German Economic Association.
    9. Danqing Wang & Zhitao Zhu & Shuo Chen & Xiaowei Rose Luo, 2021. "Running out of steam? A political incentive perspective of FDI inflows in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(4), pages 692-717, June.
    10. Nathan M. Jensen & Michael G. Findley & Daniel L. Nielson, 2020. "Electoral Institutions and Electoral Cycles in Investment Incentives: A Field Experiment on Over 3,000 U.S. Municipalities," American Journal of Political Science, John Wiley & Sons, vol. 64(4), pages 807-822, October.
    11. Garcia-Bernardo, Javier & Reurink, Arjan, 2019. "Competing with whom? European tax competition, the "great fragmentation of the firm," and varieties of FDI attraction profiles," MPIfG Discussion Paper 19/9, Max Planck Institute for the Study of Societies.
    12. Kim, Donghyuk, 2020. "Economic Spillovers and Political Values in Government Competition for Firms," ISU General Staff Papers 202009280700001111, Iowa State University, Department of Economics.
    13. Kim, Donghyuk, 2023. "Economic spillovers and political payoffs in government competition for firms: Evidence from the Kansas City Border War," Journal of Public Economics, Elsevier, vol. 224(C).
    14. Sarah Bauerle Danzman & Alexander Slaski, 2022. "Incentivizing embedded investment: Evidence from patterns of foreign direct investment in Latin America," The Review of International Organizations, Springer, vol. 17(1), pages 63-87, January.
    15. Russell S. Sobel & Gary A. Wagner & Peter T. Calcagno, 2024. "The political economy of state economic development incentives: A case of rent extraction," Economics and Politics, Wiley Blackwell, vol. 36(1), pages 104-151, March.

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