Tuesday, February 6, 2018
Allison Koester (Georgetown) presents Corporate Subsidies and Political Connections: State-level Evidence (with Daniel Aobdia (Northwestern) & Reining Petacchi (Georgetown)) at Georgetown today as part of its Tax Law and Public Finance Workshop Series hosted by Lilian Faulhaber and Itai Grinberg:
This paper examine s whether corporate political connections are associated with government awarded subsidies, and how this relation impacts subsidy effectiveness in spurring future economic growth beyond the firm. Subsidies relate to foregone government revenues through tax credits/abatements and to government resource transfers through grants and cost reimbursement programs. Using novel datasets to identify state-awarded corporate subsidies and corporate contributions to state political candidates, we find robust evidence that political contributions increase both the likelihood a company is awarded a state subsidy and the dollar value of subsidy awarded.
Companies contributing to a greater number of candidates, to both Republican and Democratic Party candidates, and to both gubernatorial and legislative candidates reap the greatest subsidy benefits. We find some evidence that state subsidies are positively associated with a state’s future intra-industry economic growth, and that subsidies awarded to politically connected companies are associated with lower growth. Our findings suggest quid pro quo behavior in the state subsidy award process results in a less efficient allocation of government resources, consistent with taxpayers being harmed by pay-to-play cronyism.