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The Persistent Effects of Place-Based Policy: Evidence from the West-German Zonenrandgebiet

Author

Listed:
  • Maximilian v. Ehrlich
  • Tobias Seidel

Abstract

Using a natural experiment, we show that temporary place-based subsidies generate persistent effects on economic density. The spatial regression discontinuity design controls for continuous local agglomeration externalities, so we attribute an important role to capital formation in explaining persistent spatial patterns of economic activity. This persistence is driven by higher local public investment levels, which local governments could maintain after the end of the program because of a persistently higher tax base. We also find evidence for significant local relocation of economic activity, which raises doubts that the net effect of the policy is positive. Finally, we show that transfers have capitalized in land rents such that pretreatment land owners have benefited from the program.

Suggested Citation

  • Maximilian v. Ehrlich & Tobias Seidel, 2018. "The Persistent Effects of Place-Based Policy: Evidence from the West-German Zonenrandgebiet," American Economic Journal: Economic Policy, American Economic Association, vol. 10(4), pages 344-374, November.
    • Handle: RePEc:aea:aejpol:v:10:y:2018:i:4:p:344-74
    Note: DOI: 10.1257/pol.20160395
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    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • H76 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other Expenditure Categories
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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    1. The Persistent Effects of Place-Based Policy: Evidence from the West-German Zonenrandgebiet (American Economic Journal: Economic Policy 2018) in ReplicationWiki

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