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A quantitative analysis of subsidy competition in the U.S.


Ossa, Ralph (2015). A quantitative analysis of subsidy competition in the U.S. NBER Working Papers 20975, National Bureau of Economic Research.

Abstract

What motivates regional governments to subsidize firm relocations and what are the implications of the subsidy competition among them? In this paper, I address these questions using a quantitative economic geography model which I calibrate to U.S. states. I show that states have strong incentives to subsidize firm relocations in order to gain at the expense of other states. I also show that subsidy competition creates large distortions so that there is much to gain from a cooperative approach. Overall, I find that manufacturing real income can be up to 3.9 percent higher if states stop competing over firms.

Abstract

What motivates regional governments to subsidize firm relocations and what are the implications of the subsidy competition among them? In this paper, I address these questions using a quantitative economic geography model which I calibrate to U.S. states. I show that states have strong incentives to subsidize firm relocations in order to gain at the expense of other states. I also show that subsidy competition creates large distortions so that there is much to gain from a cooperative approach. Overall, I find that manufacturing real income can be up to 3.9 percent higher if states stop competing over firms.

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5 citations in Microsoft Academic

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:F12, F13, R12, R58
Language:English
Date:February 2015
Deposited On:22 Mar 2017 13:47
Last Modified:14 Feb 2018 11:33
Series Name:NBER Working Papers
Number of Pages:56
OA Status:Green
Official URL:http://www.nber.org/papers/w20975.pdf
Related URLs:http://www.nber.org/papers/w20975

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