Lokale öffentliche Güter: Empirische Evidenz zum Effekt auf räumliche Firmenaktivität und zur ökonomischen Inzidenz
Zusammenfassung der Projektergebnisse
Recent decades have seen an unprecedented increase in capital mobility across jurisdictional borders, implying that governments have an incentive to adjust their fiscal policies in order to attract firms and investment. While the impact of corporate taxes on firms’ location and investment choices has been investigated extensively in the empirical literature, potential effects related to the provision of public inputs, goods and services (PIGS) have received less attention. The aim of this project was to help filling this gap. We created a panel data set that links information on the full scale of PIGS provision in German municipalities to information on the location of the universe of new firms in Germany. In a first step, we used this data to determine the impact of local PIGS provision on corporate location choices. Methodologically, we estimated fixed effect models, which controlled for observed and unobserved heterogeneity across communities and addressed remaining endogeneity problems by instrumental variable strategies. The results suggest that local PIGS (local business tax rates) exert a statistically significant and economically sizable positive (negative) effect on firm location choices. We, moreover, show that fiscal policies exert externalities on neighboring jurisdictions, thus rendering decentralized policy setting inefficient. Our findings, on top of that, point to heterogeneity in the responsiveness of different types of firms to different types of PIGS. This implies Tiebout-sorting of firms into jurisdictions. Additional analyses show that industry localization dampen firms’ responsiveness to fiscal policies. In a second set of papers, we assess the economic consequences of two specific PIGS provided by higher government tiers, namely grammar schools and public research and development (R&D). In a first paper, we use a wave of grammar school closures in Eastern Germany to determine whether PIGS centralization reinforces urbanization trends. The evidence indeed points to a quantitatively large decline in local employment in the wake of school closures in communities characterized by high commuting costs. The second paper uses hand-collected data on public research institutes in Germany to identify the impact of public R&D on private sector innovations as measured by the number of patent applications by firms in geographic proximity. The results suggest that public R&D has a positive but hump-shaped effect on private sector innovations. Finally, the project tackles incidence questions related to local PIGS provision and empirically assesses potential PIGS determinants. Based on employer-employee-data, we show that local PIGS have a diverse impact on workers’ wages. In line with theoretical considerations, size and sign of the effects, among others, depend on whether PIGS are targeted at firms or households. In a second incidence paper, we used data on rental offers to identify the link between local PIGS and rental prices for business property, yielding positive and statistically significant effects. In additional papers, we tested for partisan effects on the size and structure of local PIGS provision and assessed whether jurisdictions engage in fiscal competition. The findings suggest that the partisanship of local councils impacts on the structure (but not the overall level) of local PIGS spending. In terms of fiscal competition, we find no evidence for interactions in the spending policies of neighboring jurisdictions.
