Working Paper: NBER ID: w30664
Authors: Benjamin G. Hyman; Matthew Freedman; Shantanu Khanna; David Neumark
Abstract: We examine firm responses to location-based hiring subsidies. We leverage institutional features of the California Competes Tax Credit (CCTC), a large-scale business incentive program that incorporates best practices from prior job creation policies. The CCTC award selection procedure combines formula-based and discretionary components. Leveraging applicant score eligibility cutoffs in a regression discontinuity design and taking advantage of rich longitudinal microdata on establishments and their parent firms, we find that firms expand activity in California in response to CCTC awards, particularly in disadvantaged parts of the state. Our results suggest that targeted and audited hiring subsidies can be effective in promoting local business expansions. We also examine the potential spillovers to other states and do not find strong evidence that the CCTC induces significant cross-state displacement effects.
Keywords: hiring subsidies; business incentives; California Competes Tax Credit; employment growth; regression discontinuity
JEL Codes: H25; H71; H73; J23; J38; R12; R38; R58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| CCTC awards (Y10) | firm activity in California (G24) |
| CCTC awards (Y10) | employment growth (O49) |
| CCTC awards (Y10) | payroll growth (J39) |
| CCTC awards (Y10) | business expansions (M13) |
| CCTC awards (Y10) | benefits in lower-income regions (R11) |
| CCTC eligibility (C24) | employment growth (O49) |
| CCTC eligibility (C24) | payroll growth (J39) |