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Firm Responses to State Hiring Subsidies: Regression Discontinuity Evidence from a Tax Credit Formula

Author

Listed:
  • Benjamin G. Hyman
  • Matthew Freedman
  • Shantanu Khanna
  • David Neumark

Abstract

We examine firm responses to location-based hiring subsidies. We leverage institutional features of the California Competes Tax Credit (CCTC), a large-scale business incentive program that incorporates best practices from prior job creation policies. The CCTC award selection procedure combines formula-based and discretionary components. Leveraging applicant score eligibility cutoffs in a regression discontinuity design and taking advantage of rich longitudinal microdata on establishments and their parent firms, we find that firms expand activity in California in response to CCTC awards, particularly in disadvantaged parts of the state. Our results suggest that targeted and audited hiring subsidies can be effective in promoting local business expansions. We also examine the potential spillovers to other states and do not find strong evidence that the CCTC induces significant cross-state displacement effects.

Suggested Citation

  • Benjamin G. Hyman & Matthew Freedman & Shantanu Khanna & David Neumark, 2022. "Firm Responses to State Hiring Subsidies: Regression Discontinuity Evidence from a Tax Credit Formula," NBER Working Papers 30664, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30664
    Note: LS PE
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    Cited by:

    1. Freedman, Matthew & Khanna, Shantanu & Neumark, David, 2023. "Combining rules and discretion in economic development policy: Evidence on the impacts of the California Competes Tax Credit," Journal of Public Economics, Elsevier, vol. 217(C).

    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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