Paper

Monday, January 27

Margaret Kenney (University of California, Berkeley)

Title: Cash, Cuts, and Controversy: How Features of Investment Incentives Affect Credit Claiming

Abstract: The rise of industrial policy has led to a global increase in the use of investment incentives. However, new international agreement on taxation will limit the benefits of tax incentives and will reshape how politicians and bureaucrats recruit investment. Therefore, in this paper, I ask: How do the features of investment incentive programs affect the support of voters and policymakers? I argue that the policy instrument (tax vs. non-tax), firm’s nationality, and the number of jobs created impact public support for investment incentives. I also expect that politicians will provide incentives in line with voters’ preferences to maximize credit claiming benefits. I test these theoretical expectations through a survey experiment of 3753 Americans and an extension of a field experiment of 3117 municipal governments. I find that there are distinct levels of support from voters based on firm nationality, number of jobs created, and policy instrument. Negative characteristics of investment incentives – in the eyes of voters – cannot be ameliorated by providing additional benefits. Next, I find that elected politicians provide incentives that reflect their assumption of voters’ preferences. This paper contributes to our understanding of industrial policy programs, in addition to providing insight on economic pandering.