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A quantitative analysis of subsidy competition in the U.S

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  • Ferrari, Alessandro
  • Ossa, Ralph

Abstract

We use a quantitative economic geography model to explore subsidy competition among U.S. states. We ask what motivates state governments to subsidize firm relocations and quantify how strong their incentives are. We also characterize fully non-cooperative and cooperative subsidy choices and assess how far away we are from these extremes. We find that states have strong incentives to subsidize firm relocations in order to gain at the expense of other states. We also find that observed subsidies are closer to cooperative than non-cooperative subsidies but the potential losses from an escalation of subsidy competition are large.

Suggested Citation

  • Ferrari, Alessandro & Ossa, Ralph, 2023. "A quantitative analysis of subsidy competition in the U.S," Journal of Public Economics, Elsevier, vol. 224(C).
    • Handle: RePEc:eee:pubeco:v:224:y:2023:i:c:s0047272723001019
    DOI: 10.1016/j.jpubeco.2023.104919
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    1. Vincenzo Cuciniello & Claudio Michelacci & Luigi Paciello, 2023. "Subsidizing business entry in competitive credit markets," Temi di discussione (Economic working papers) 1424, Bank of Italy, Economic Research and International Relations Area.

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    More about this item

    Keywords

    Optimal subsidies; Subsidy competition; Location choice;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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