DC Accepted Papers Paper:
State Business Incentives and Employment Growth: Evidence across Firm Size and Age
*Names in bold indicate Presenter
States have used various business incentives to influence business relocation, expansion, and startup decisions (Buss 2001). The recent Amazon’s HQ2 search is a prominent example. A large body of literature considers how incentives influence relocation and expansion decisions of large firms, but there is a significant gap of knowledge when it comes to startups. In theory, incentives effectively lower taxes for eligible firms, and should spur job creation and investment, particularly for small-and-medium firms, which are more credit constrained than large firms. The overwhelming sentiment, however, is that incentives are ineffective. These negative assessments are based on studies on large firms and overlook a possibility of a differential effect across firm size and firm age, and five different types of incentives: (i) job creation tax credit; (ii) property tax abatement; (iii) r&d tax credit; (iv) investment tax credit; (v) and, customized job training. Using a novel database on incentives, I find evidence that suggests investment tax credit and customized job training spur growth among startups, spinoffs, and small businesses, while job creation tax credit dampens it.
