2025/02/24 by Cailin Slattery · 1 voice
Economics, Econometrics and Finance · Business, Management and Accounting · #Fiscal Policy and Economic Growth #Corporate Taxation and Avoidance #Taxation and Compliance Studies
paper · doi:10.1086/735509
openalex created_date 2021/05/24 · openalex publication_date 2025/02/24 · openalex updated_date 2026/07/31
State and local governments in the United States compete to attract firms by offering discretionary subsidies. I use a private value English auction to model the subsidy bidding process and quantify the welfare effects of competition. The allocation of rents between states and firms depends on the heterogeneity in states’ valuations for firms and the substitutability of locations. I find that competition increases welfare by less than 5% over a subsidy ban, and states compete away the surplus, transferring all of the rents to firms. These findings dampen any interpretation of subsidy competition as an effective place-based policy.