Pass the Bucks: Investment Pass the Bucks: Investment Incentives as Political Credit-Incentives as Political Credit-

Claiming Devices Claiming Devices

Evidence from a Survey Evidence from a Survey ExperimentExperimentNathan M JensenNathan M JensenEdmund MaleskyEdmund MaleskyMariana MedinaMariana MedinaUgur OzdemirUgur Ozdemir

Public Policy PuzzlePublic Policy Puzzle Tax incentives have little impact on investment Tax incentives have little impact on investment

decisionsdecisions(Wells et al 2001; Bobonis and Shatz 2007)(Wells et al 2001; Bobonis and Shatz 2007)

Incentives are too large relative to benefitsIncentives are too large relative to benefits(Morris and Pirnia 1999; Blomstrom and Kokko 2003; (Morris and Pirnia 1999; Blomstrom and Kokko 2003;

Buettner and Ruf 2007) Buettner and Ruf 2007) 17 projects in the U.S. since 2002 over $100 million 17 projects in the U.S. since 2002 over $100 million

eacheach VW in Tennessee: $450 million ($225,000 per job)VW in Tennessee: $450 million ($225,000 per job) AMD and IBM in New York ($1.1 billion and $0.5 billion) AMD and IBM in New York ($1.1 billion and $0.5 billion)

Most countries offer tax incentivesMost countries offer tax incentives Ford in Romania: $193 million ($83,000 per job)Ford in Romania: $193 million ($83,000 per job)

Motivation: Globalization Motivation: Globalization and Credit Claimingand Credit Claiming

Economic performance affects perceptions of Economic performance affects perceptions of government and votinggovernment and voting Voters blame politicians economic impact of Voters blame politicians economic impact of

international markets, natural disasters and shark international markets, natural disasters and shark attacks (Hellwig et al 2008)attacks (Hellwig et al 2008)

““Globalization” as a justification or mechanism Globalization” as a justification or mechanism for preferred policiesfor preferred policies Increases rejection costs (Vreeland 2003)Increases rejection costs (Vreeland 2003) Inefficient redistribution (Acemoglu and Robinson Inefficient redistribution (Acemoglu and Robinson

2001)2001) Fiscal Illusion/Obfuscation (Wagner 1976; Kono Fiscal Illusion/Obfuscation (Wagner 1976; Kono

2006)2006)

TheoryTheory

Model: PanderingModel: Pandering High vs low quality politicians, voters, High vs low quality politicians, voters,

and imperfect informationand imperfect information Implication: Politicians can offer tax Implication: Politicians can offer tax

incentives, even when they are the incentives, even when they are the incorrect policyincorrect policy

ExtensionsExtensions More direct focus on voters, specifically More direct focus on voters, specifically

partisan and independent voters.partisan and independent voters.

Incentives, Economic Incentives, Economic Performance, and Voter’s Performance, and Voter’s

DecisionsDecisions

Three HypothesesThree Hypotheses

H1: Voters are more likely to reelect governors H1: Voters are more likely to reelect governors who attract investment to their state.who attract investment to their state.

H2: Voters are more likely to reward governors H2: Voters are more likely to reward governors who attract investment and offer fiscal who attract investment and offer fiscal incentives.incentives.

H3: Ideologically independent voters are more H3: Ideologically independent voters are more likely than partisan voters to reward the use of likely than partisan voters to reward the use of incentive policies.incentive policies.

Research DesignResearch Design

Simple survey experiment in the U.S.Simple survey experiment in the U.S. Treatments on Treatments on investmentinvestment and and incentivesincentives Affect of treatment on voting for the Affect of treatment on voting for the

governorgovernor

Data: 2009 Cooperative Congressional Data: 2009 Cooperative Congressional Election SurveyElection Survey Representative U.S. sample (1,974)Representative U.S. sample (1,974)

Experimental QuestionExperimental QuestionYour state competed with a number of other states over a newYour state competed with a number of other states over a newmanufacturing plant that will create 1,000 jobs.manufacturing plant that will create 1,000 jobs.

With the support of the governor, your state offered a tax incentiveWith the support of the governor, your state offered a tax incentive(break/reduction) package (break/reduction) package that was that was [[greater/equal or lessgreater/equal or less] ] than that ofthan that ofthe other states.  If your state the other states.  If your state [[receives/does not receivereceives/does not receive] ] thisthisinvestment, how would this effect your evaluation of your governor’sinvestment, how would this effect your evaluation of your governor’sperformance in office?performance in office?

1)  I would be much more likely to vote for the governor in the next 1)  I would be much more likely to vote for the governor in the next election.election.

2)  I would be slightly more likely to vote for the governor in the next 2)  I would be slightly more likely to vote for the governor in the next election.election.

3)  My vote choice would not be altered. 3)  My vote choice would not be altered. 4)  I would be slightly less likely to vote for the governor in the next 4)  I would be slightly less likely to vote for the governor in the next

election.  election.  5) I would be much less likely to vote for the governor in the next 5) I would be much less likely to vote for the governor in the next

election. election.

Graph of Interaction Graph of Interaction

Results from Ordered Results from Ordered Probit ModelProbit Model

Attracting Investment affects approval: Among Attracting Investment affects approval: Among the general population, offering an incentive the general population, offering an incentive offers an additional 1.4% votes in favor of the offers an additional 1.4% votes in favor of the governor.governor.

Partisan voters are less susceptible to changing Partisan voters are less susceptible to changing their voting intentions for the governor.their voting intentions for the governor. The vote bonus for independents from governors winning The vote bonus for independents from governors winning

projects with the use of incentives is 5.6%.projects with the use of incentives is 5.6%. The vote bonus for incentives is higher for losing governors The vote bonus for incentives is higher for losing governors

(about 3.5% from all respondents, 11.2% from (about 3.5% from all respondents, 11.2% from independents).independents).

Dominant strategy is to offer an incentive.Dominant strategy is to offer an incentive.

Additional TestsAdditional Tests

Survey QuestionsSurvey Questions Knowledge of incentivesKnowledge of incentives

Experimental QuestionsExperimental Questions Attribution of economic performance Attribution of economic performance

[[recovery, declinerecovery, decline]] Perceptions of investment by originPerceptions of investment by origin

[[foreign, Chinese, Japaneseforeign, Chinese, Japanese]]

Conclusions and Future Conclusions and Future ResearchResearch

ConclusionConclusion Offering tax incentives, while economically Offering tax incentives, while economically

inefficient, is a dominant strategy.inefficient, is a dominant strategy. Mediated by Approval: Popular governors have Mediated by Approval: Popular governors have

less need to gamble for resurrection by less need to gamble for resurrection by pursuing economically damaging but politically pursuing economically damaging but politically advantageous policies.advantageous policies.

Future ResearchFuture Research Theory: Focus on individual behaviorTheory: Focus on individual behavior Empirics:Empirics:

2010 CCES 2010 CCES Testing outside of the United StatesTesting outside of the United States