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A Quantitative Analysis of Subsidy Competition in the U.S

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  • Ralph Ossa

Abstract

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

  • Ralph Ossa, 2015. "A Quantitative Analysis of Subsidy Competition in the U.S," NBER Working Papers 20975, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20975
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    Cited by:

    1. Owen Zidar & Juan Carlos Serrato & Eduardo Morales & Pablo Fajgelbaum, 2015. "State Taxes and Spatial Misallocation," 2015 Meeting Papers 877, Society for Economic Dynamics.
    2. Ufuk Akcigit & Sina T. Ates & Giammario Impullitti, 2018. "Innovation and Trade Policy in a Globalized World," NBER Working Papers 24543, National Bureau of Economic Research, Inc.
    3. Ralph Ossa, 2016. "Quantitative Models of Commercial Policy," NBER Working Papers 22062, National Bureau of Economic Research, Inc.
    4. Bernard Hoekman, 2016. "Subsidies, Spillovers and WTO Rules in a Value-chain World," Global Policy, London School of Economics and Political Science, vol. 7(3), pages 351-359, September.
    5. Ufuk Akcigit & Sina T. Ates & Giammario Impullitti, 2018. "Innovation and Trade Policy in a Globalized World," International Finance Discussion Papers 1230, Board of Governors of the Federal Reserve System (U.S.).
    6. Pablo Fajgelbaum & Cecile Gaubert, 2018. "Optimal Spatial Policies, Geography and Sorting," 2018 Meeting Papers 1319, Society for Economic Dynamics.

    More about this item

    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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