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Local Policy Misperceptions and Investment: Experimental Evidence from Firm Decision Makers

Author

Listed:
  • Blesse, Sebastian

    (University of Leipzig)

  • Buhlmann, Florian

    (ZEW Mannheim)

  • Heil, Philipp

    (ifo Institute, University of Munich)

  • Rostam-Afschar, Davud

    (University of Mannheim)

Abstract

We study firm responses to local policies through a survey experiment, providing randomized information on the competitiveness of business tax rates and highway access in their headquarters’ municipality. Firms often misperceive local policy competitiveness, especially for tax rates. Investment decisions respond asymmetrically to tax competitiveness. Positive tax rank information reduces investment intentions in neighboring municipalities. Compared to this, negative tax news increase relocation plans. However, most firms receiving bad news plan to continue investing in their headquarters’ municipality, indicating home bias. These effects are strongest for mobile firms and corporations. Negative infrastructure news lower location satisfaction but do not influence investment.

Suggested Citation

  • Blesse, Sebastian & Buhlmann, Florian & Heil, Philipp & Rostam-Afschar, Davud, 2025. "Local Policy Misperceptions and Investment: Experimental Evidence from Firm Decision Makers," IZA Discussion Papers 17868, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp17868
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    More about this item

    Keywords

    survey experiment; firm location; infrastructure; tax competition;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • 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
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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