Working Paper: CEPR ID: DP15384
Authors: Piotr Danisewicz; Steven Ongena
Abstract: Can local government spending spur entrepreneurial activity? To answer this question we study Poland where municipalities with lower tax revenues receive direct monetary grants from the national budget that vary at multiple pre-determined and non-manipulable thresholds. Employ-ing a fuzzy regression discontinuity design, we find a positive impact of fiscal transfers on the number of firms, especially sole proprietorships and small firms. The impact is stronger in mu-nicipalities where the opposition is more involved in the legislative process or more parties are represented in the municipal council, and in regions where historical legacies shaped a more positive attitude towards entrepreneurship.
Keywords: fiscal transfers; local government spending; entrepreneurship; fuzzy regression discontinuity design
JEL Codes: E62; H71; H72; L26; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal transfers (H87) | Number of firms (L20) |
| 1% increase in subsidy (H23) | per capita total establishments (D20) |
| Fiscal transfers (H87) | Entrepreneurship (sole proprietorships and small firms) (L26) |
| Local governance structures (political competition and number of political parties) (D72) | Impact of fiscal transfers on entrepreneurship (H39) |
| Historical legacies (N93) | Attitudes toward entrepreneurship (L26) |
| Fiscal transfers (H87) | Attitudes toward entrepreneurship (L26) |