Jobless capital? The role of capital subsidies

Arbeitspapier

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.

Show object

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Upjohn Institute Working Paper ; No. 15-237

Classification and Topics

• Classification: Wirtschaft ; Other Spatial Production and Pricing Analysis ; Business Taxes and Subsidies including sales and value-added (VAT) ; Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
• Subject: economic development incentives ; capital subsidies ; capital-labor substitution

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Patrick, Carlianne E.
• Event: Veröffentlichung
• (who): W.E. Upjohn Institute for Employment Research
• (where): Kalamazoo, MI
• (when): 2015

Further information

• DOI: doi:10.17848/wp15-237
• Handle: http://hdl.handle.net/10419/126273