Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/126273
Authors: 
Patrick, Carlianne E.
Year of Publication: 
2015
Series/Report no.: 
Upjohn Institute Working Paper 15-237
Abstract: 
Using tax abatements, financial incentives, and public investments to attract (or retain) firms is the primary economic development tool for many local governments. Often local job creation policies focus on increasing capital through grants, low-interest financing, and other economic development incentives. Theory predicts that capital subsidies induce firm behaviors that limit their job creation effects. This paper employs the Incentives Environment Index, constructed from state constitutional provisions that limit and structure the ability of state and local governmental entities to aid private enterprises, and five-year county panels to test theoretical predictions on county capital expenditure and input mixes as well as industry establishment shares. The results indicate the act of increasing capital subsidy tools is associated with capital-labor substitution, decreased employment density, and changes in local industry mix. Results are robust to alternative empirical specifications and measures of capital subsidy availability.
Subjects: 
economic development incentives
capital subsidies
capital-labor substitution
JEL: 
R32
H25
R11
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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