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Fiscal transfers, local government, and entrepreneurship

Author

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  • Piotr Danisewicz

    (University of Bristol)

  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))

Abstract

Can local government spending spur entrepreneurial activity? To answer this question we study Poland where municipalities with lower tax revenues receive direct monetary grants from the national budget that vary at multiple pre-determined and non-manipulable thresholds. Employing a fuzzy regression discontinuity design, we find a positive impact of fiscal transfers on the number of firms, especially sole proprietorships and small firms. The impact is stronger in municipalities where the opposition is more involved in the legislative process or more parties are represented in the municipal council, and in regions where historical legacies shaped a more positive attitude towards entrepreneurship.

Suggested Citation

  • Piotr Danisewicz & Steven Ongena, 2020. "Fiscal transfers, local government, and entrepreneurship," Swiss Finance Institute Research Paper Series 20-89, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2089
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    Cited by:

    1. Diana Bonfim & Miguel A. Ferreira & Francisco Queiro & Sujiao (Emma) Zhao, 2022. "Fiscal policy and credit supply: The procurement channel," Nova SBE Working Paper Series wp644, Universidade Nova de Lisboa, Nova School of Business and Economics.

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    More about this item

    Keywords

    Fiscal transfers; Local government spending; Entrepreneurship; “Fuzzy” Regression Discontinuity Design.;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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