Pass the Bucks: Investment Incentives as Political Credit-Claiming Devices Evidence from a Survey Experiment

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Pass the Bucks Investment Incentives as
Political Credit-Claiming Devices Evidence from
a Survey Experiment

• Nathan M JensenEdmund MaleskyMariana
  MedinaUgur Ozdemir

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Public Policy Puzzle

• Tax incentives have little impact on investment
  decisions
• (Wells et al 2001 Bobonis and Shatz 2007)
• Incentives are too large relative to benefits
• (Morris and Pirnia 1999 Blomstrom and Kokko
  2003 Buettner and Ruf 2007)
• 17 projects in the U.S. since 2002 over 100
  million each
• VW in Tennessee 450 million (225,000 per job)
• AMD and IBM in New York (1.1 billion and 0.5
  billion)
• Most countries offer tax incentives
• Ford in Romania 193 million (83,000 per job)

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Motivation Globalization and Credit Claiming

• Economic performance affects perceptions of
  government and voting
• Voters blame politicians economic impact of
  international markets, natural disasters and
  shark attacks (Hellwig et al 2008)
• Globalization as a justification or mechanism
  for preferred policies
• Increases rejection costs (Vreeland 2003)
• Inefficient redistribution (Acemoglu and Robinson
  2001)
• Fiscal Illusion/Obfuscation (Wagner 1976 Kono
  2006)

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Theory

• Model Pandering
• High vs low quality politicians, voters, and
  imperfect information
• Implication Politicians can offer tax
  incentives, even when they are the incorrect
  policy
• Extensions
• More direct focus on voters, specifically
  partisan and independent voters.

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Incentives, Economic Performance, and Voters
Decisions
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Three Hypotheses

• H1 Voters are more likely to reelect governors
  who attract investment to their state.
• H2 Voters are more likely to reward governors
  who attract investment and offer fiscal
  incentives.
• H3 Ideologically independent voters are more
  likely than partisan voters to reward the use of
  incentive policies.

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Research Design

• Simple survey experiment in the U.S.
• Treatments on investment and incentives
• Affect of treatment on voting for the governor
• Data 2009 Cooperative Congressional Election
  Survey
• Representative U.S. sample (1,974)

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Experimental Question

• Your state competed with a number of other states
  over a new
• manufacturing plant that will create 1,000 jobs.
• With the support of the governor, your state
  offered a tax incentive
• (break/reduction) package that was greater/equal
  or less than that of
• the other states.  If your state receives/does
  not receive this
• investment, how would this effect your evaluation
  of your governors
• performance in office?
• 1)  I would be much more likely to vote for the
  governor in the next election.
• 2)  I would be slightly more likely to vote for
  the governor in the next election.
• 3)  My vote choice would not be altered.
• 4)  I would be slightly less likely to vote for
  the governor in the next election. 
• 5) I would be much less likely to vote for the
  governor in the next election.

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Graph of Interaction
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Results from Ordered Probit Model

• Attracting Investment affects approval Among the
  general population, offering an incentive offers
  an additional 1.4 votes in favor of the
  governor.
• Partisan voters are less susceptible to changing
  their voting intentions for the governor.
• The vote bonus for independents from governors
  winning projects with the use of incentives is
  5.6.
• The vote bonus for incentives is higher for
  losing governors (about 3.5 from all
  respondents, 11.2 from independents).
• Dominant strategy is to offer an incentive.

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Additional Tests

• Survey Questions
• Knowledge of incentives
• Experimental Questions
• Attribution of economic performance
• recovery, decline
• Perceptions of investment by origin
• foreign, Chinese, Japanese

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Conclusions and Future Research

• Conclusion
• Offering tax incentives, while economically
  inefficient, is a dominant strategy.
• Mediated by Approval Popular governors have less
  need to gamble for resurrection by pursuing
  economically damaging but politically
  advantageous policies.
• Future Research
• Theory Focus on individual behavior
• Empirics
• 2010 CCES
• Testing outside of the United States