Ralph Ossa (Chicago Booth) will present:

"A Quantitative Analysis of Subsidy Competition in the U.S."

at 12:15pm on Tuesday, May 5, 2015 in 051 Volanakis (Buchanan) TUCK

Lunch will be served at noon.

There are still a few slots available. Please sign up for a meeting, or dinner at:

https://docs.google.com/spreadsheets/d/1x7yM60ductStiE88G2W_lz9ogkVKl0ShELHCQ4nuRHk/edit?usp=sharing

If you will be attending the Lunch Seminar and have not already done so, please RSVP to Richard Rielly at TUCK so he can order the appropriate amount of food.

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Abstract

What motivates regional governments to subsidize firm relocations and what are the implications of the subsidy competition among them? In this paper, I address these questions using a quantitative economic geography model which I calibrate to U.S. states. I show that states have strong incentives to subsidize firm relocations in order to gain at the expense of other states. I also show that subsidy competition creates large distortions so that there is much to gain from a cooperative approach. Overall, I find that manufacturing real income can be up to 3.9 percent higher if states stop competing over firms.