FIRM HETEROGENEITY,MULTIPLANT CHOICE,AND AGGLOMERATION

We examine the organization and location choice of heterogeneous firms in a two‐region economy. When some high‐productivity firms engage in multiplant production, a reduction in transport costs causes two changes in a small region: the closure of plants by high‐productivity multiplant firms and the relocation of low‐productivity single‐plant firms to the region. In the presence of high‐productivity multiplant firms, therefore, a decline in transport costs reinforces the spatial sorting of firms by productivity, enlarging the productivity gap between large and small regions. Conversely, reducing investment costs weakens the spatial sorting effects on regional productivity disparities.     

Heterogeneous impacts of China's economic and development zone program

This paper examines the impact of economic and development zones (EDZs) on the productivity of incumbent firms in China. To deal with the selection issue, I first take into account potentially different selection mechanisms across two popular types of EDZs—economic and technological development zones (ETDZs) and high‐tech development zones (HTDZs)—by relying on multiple treatment propensity scores matching techniques. Next, I apply the difference‐in‐differences estimator to the matched sample and conduct an event study analysis. The results show that the respective effects of ETDZs and HTDZs on firm productivity are positive, but subject to a nonlinear trend over time. The size of the productivity gains depends critically on the type of EDZ, however. A new HTDZ (ETDZ) leads to an average productivity gain of up to 30.2% (18.4%) for incumbent firms in the 5 years after the zone was created. These findings suggest that the size of productivity spillovers for spatially targeted firms differ quite significantly depending on the strategic development and policy goals of the EDZ: HTDZs that focus on promoting indigenous‐based factors of learning lead to higher productivity spillovers compared with ETDZs that focus on promoting extra‐local linkages.     

Picking 'winners' in space: Impact of spatial targeting on firm performance in China

This paper examines the spatial patterns of China's industrial encouragement policy and its distributional impact on firm productivity. To this end, I develop separate proxies to measure three popular policy instruments (subsidies, tax holidays, and preferential access to loans). I first show that China's industrial support policies tend to exhibit a prominent spatial feature of targeting firms located in lagging cities with lower density. Taking into account potential endogeneity of industrial policy, unobserved heterogeneity and firm dynamics, quantile regression techniques show that more intense industrial support leads to: (a) a reduction in the productivity of lower-performing firms, especially in denser cities; and (b) a small productivity gain for better performing firms but only in denser cities. Counterfactual analysis further reveals that pursuing an alternative, space-neutral industrial encouragement policy would increase average productivity by 14–16%, in aggregate, but also contribute to significantly higher regional inequality.     

DO LOCATION‐BASED TAX INCENTIVES IMPROVE QUALITY OF LIFE AND QUALITY OF BUSINESS ENVIRONMENT?

We examine how location‐based tax incentives affect quality of life and business environment through changes in property values and equilibrium wages. Using the federal Empowerment Zone program, we determine whether offering tax incentives to firms improves the welfare of the citizens and attractiveness to firms. We demonstrate that quality of life methodologies can be applied using small geographically aggregated data, such as census block groups. We find that the tax incentives offered by the program notably enhances the quality of business environment for firms in the area while modestly improving the quality of life for the individuals living in the area.     

EXTERNALITIES AND PARTIAL TAX REFORM: DOES IT MAKE SENSE TO TAX ROAD FREIGHT (BUT NOT PASSENGER) TRANSPORT?*

ABSTRACT Externalities such as pollution and road congestion are jointly produced by the use of intermediate inputs by firms and the consumption of final goods by households. To cope with such externalities, policy proposals often suggest partial tax reforms. This paper uses a simple general equilibrium model to explore the effects of a reform of taxes on freight transport in a second‐best setting. The theoretical model shows that the welfare effect of higher freight taxes is positive, unless passenger transport is severely under‐taxed and the tax reform attracts substantially more passenger transport. Moreover, the optimal freight tax may be below or above marginal external cost. Budgetary neutral tax reform exercises with a numerical simulation model for the U.K. suggest that, under a wide variety of parameter values, higher freight transport taxes are indeed welfare increasing. The welfare gain of freight tax reform rises with the level of the passenger tax, but the optimal freight tax declines at higher taxes on passenger transport. Substantial net benefits of tax reform are obtained only under labor tax recycling of the revenues.     

COMPANY WELFARE PROGRAMMES AND INDUSTRIAL MODERNIZATION IN FINLAND

Prior to the modern welfare state, many large companies provided extensive welfare programmes for their employees. In this article, such welfare programmes – or corporate welfarism – in Finnish manufacturing firms in the early 20th century are the focus of attention. I analyse the content of these programmes and how they changed over time as part of the modernization and professionalization of management and industrial and societal change. I also discuss how company managers perceived the role of welfare provisions in corporate development and what happened with these programmes when the first steps towards the modern welfare state were taken. I show that these programmes started as a necessity and part of industrial paternalism, but gradually became part of labour management, in particular for the creation of a loyal workforce and productivity improvements. These programmes often developed in collaboration with local municipalities, which led to intertwined relationships at the local level, marked by both trust and tension in local communities. Once general welfare reforms emerged, companies often abandoned their voluntary programmes, while some services were taken over by the municipalities. I also ask to what extent these programmes were managerial strategies to counteract growing state involvement in their affairs.     

Digital gravity? Firm birth and relocation patterns of young digital firms in Germany

This paper analyses the spatial patterns of young (<10 years) digital firms in Germany between 2008 and 2017 on county level. Determinants of firm birth locations as well as relocations are considered jointly to understand differences in location choices within firms' life cycles. I match commercial register data of 107,321 firms with county-level administrative data to capture local characteristics. Using an OLS model with fixed effects, I find that the local knowledge base—that is, universities, research institutes, and colocated incumbents—are significant key determinants of digital firm birth when controlling for a host of local characteristics. My results indicate that for five firms per 1000 inhabitants, there is around one firm birth. Second, using a fixed effects gravity model for the analysis of relocations, I find that the most dominant explanatory factor for firm relocation across specifications is distance, that is, relocation costs. Relocation flows are more than twice as high to neighboring counties relative to other locations which shows that digital firms are not as footloose as their business model may suggest. Jointly, my results reflect economic activity's regional persistence, particularly for new firms. My paper provides evidence for policies targeting homogenous digital clusters based on strong colocation and that digital economic activity is not shifted over long distances, but the regional entrepreneurship capital is crucial for local growth.     

WHAT DO BUSINESS CLIMATE INDEXES TEACH US ABOUT STATE POLICY AND ECONOMIC GROWTH?*

ABSTRACT State business climate indexes capture state policies that might affect economic growth. State rankings in these indexes vary wildly, raising questions about what the indexes measure and which policies are important for growth. Indexes focused on productivity do not predict economic growth, while indexes emphasizing taxes and costs predict growth of employment, wages, and output. Analysis of sub‐indexes of the tax‐and‐cost‐related indexes points to two policy factors associated with faster growth: less spending on welfare and transfer payments; and more uniform and simpler corporate tax structures. But factors beyond the control of policy have a stronger relationship with economic growth.     

FIRM PRODUCTIVITY AND INSTITUTIONAL QUALITY: EVIDENCE FROM ITALIAN INDUSTRY

This paper aims to contribute to the debate on the determinants of differentials in firms’ productivity. We test the hypothesis that macro factors, especially the quality of local institutions, play a central role in explaining firm productivity in Italy. To this end, we construct measures of Total Factor Productivity (TFP) for about 4,000 firms by means of different estimation techniques, and a province‐level index of institutional quality. Then, we estimate the relationship between institutional quality and firm‐level TFP. Our results show that the existence of better local institutions might help firms to become more productive.     

MOVING CENTRAL KNOWLEDGE TO A NORTHERN PERIPHERY: EXPLORING LOGICS OF PUBLIC SECTOR JOB RELOCATION IN SWEDEN

Through the means of Swedish relocation politics, the capital of Stockholm has been constructed as a governing centre with the ability of giving something to a periphery thought of as unable to survive on its own. The relationship between centre and periphery, furthermore, produces images of what kind of knowledge can be located to “central” or “peripheral” regions. In this article I research the move of a knowledge‐intense government agency from Stockholm to Östersund, a smaller inland town in the north. The data were collected through an ethnographic case study of a government agency. I adopt a discourse theoretical approach that provides a clear ontology of identity and processes of identification. This enables research on how ideological images of places create geographical identity positions. The aim of this article is to explore how groups of professionals at the government agency identified with geographical identities dependent on whether they were seen as experts or generalists. In conclusion, identity positions became important for how the relocation was organized. The establishment of the two identity positions functioned to stabilize the social environment during the move, a time when many things at work seemed to be in turmoil. At the same time the positions worked to exclude other ways of identifying with (work)place, and in this way sustained asymmetrical relations of domination and subordination between centre and periphery.     

Capital Assistance for Small Firms: Some Implications for Regional Economic Welfare

This paper analyzes the role of finance capital in regional economic development. A cost‐benefit approach is invoked in order to estimate the welfare impacts of a regional loan and guarantee program for small firms in Israel. Program‐created employment is treated as a benefit and an employment account that separates net from gross employment, is presented. An estimate of net wage benefits is then derived. This involves adjusting wages across different earnings classes in order to account for the variation in opportunity costs of labor at different levels. The estimation of costs includes the opportunity costs of capital, administration, default, and tax‐raising costs. Results point to substantial regional welfare effects. We stress the need to account for changing regional economic structure in this kind of evaluation framework.     

Place‐based policies,firm productivity,and displacement effects: Evidence from Shenzhen,China

Developing and transitional countries devote considerable funds to selected areas to stimulate local growth and firm productivity. We examine the impact of place‐based interventions due to the opening of science parks in Shenzhen, China, on firm productivity and factor use. Our identification strategy, exploiting spatial and temporal differencing in firm‐level data, addresses the issues that (a) the selection of science park locations is not random and (b) high‐productivity firms sort themselves into science parks. Firm productivity is approximately 15–25% higher due to the science park policy. The policy also increases local wages and leads to distortions due to job displacement.     

Not My Taxes! Explaining Tax Resistance and its Implications for Australia's Welfare State

In discussing Australia's need to increase taxes to pay for future social security, Michael Keating worries that voters see taxes as a ‘burden’ and that ‘the link between taxation and citizenship has been broken’. This paper deals with the problem of tax resistance (preferring lower taxes even when tax cuts risk public services) for Australia's welfare state. First, I describe how two Australian fiscal institutions—a residual welfare system and visible income taxes—promote tax resistance among voters. Second, I draw on these insights to develop several explanations for tax resistance: voter self-interest, voter hostility to minorities, voter disengagement (low trust and lack of interest in politics), and individualistic attitudes. The main conclusion is that tax resistance in Australia is institutionalised, making it easier to mobilise interests around low taxes, and harder to advocate for alternatives. Results of multivariate analysis using AES 2004 data indicate that an ‘anti-tax coalition’ can build on three diverse publics; one of higher and middle-income earners attuned to self-interest, another hostile to welfare beneficiaries, and another ‘tuned out’ of politics and willing to support any call for tax cuts. Inevitably, the debate about the welfare state is shadowed by a debate about voter willingness to pay taxes that finance it.     

LOCATIONAL SIGNALING AND AGGLOMERATION

Agglomeration can be caused by asymmetric information and a locational signaling effect: The location choice of workers signals their productivity to potential employers. The cost of a signal is the cost of housing at that location. When workers' marginal willingness to pay for housing is negatively correlated with their productivity, only the core‐periphery (partially stratified) equilibria are stable. When workers' marginal willingness to pay for housing and their productivity are positively correlated, there is no core‐periphery equilibrium. The urban wage premium is explained when there is a core‐periphery equilibrium. Furthermore, location can at best be an approximate rather than a precise sieve for high‐skill workers.     

Employment Dynamics on Business Estates

The central question of this paper is: “What is the magnitude of different forms of employment dynamics on business estates in the Netherlands between 2000 and 2005 and to what extent are the employment dynamics on business estates different from employment dynamics in general?” In order to answer this question, we examine three kinds of local employment dynamics: (1) entries and exits, (2) inter-municipal relocation and (3) the growth/decline of existing firms. We find that new firm formation and inter-municipal relocation do not lead to employment growth on business estates. However, the in situ employment growth on business estates is higher than the general employment growth in the Netherlands. Therefore, it can be concluded that business estates play an important role in local employment dynamics by facilitating the growth of incumbent firms.     

LOCATING OUTSIDE A LINEAR CITY CAN BENEFIT CONSUMERS*

ABSTRACT We investigate the effects of restricting the locations of firms in Hotelling duopoly models. In standard location‐price models, the equilibrium distance between firms is too great from the viewpoint of consumer welfare. Thus, restricting the locations of firms and shortening the distance between them improves consumer welfare by reducing prices and transport costs. We introduce strategic reward contracts into location‐price models and find that, in contrast to the above result, restrictions on the locations of firms reduce consumer welfare. These restrictions reduce transport costs but increase prices by changing the strategic commitments of the firms.     

REGIONAL POLICY ANALYSIS IN A SIMPLE GENERAL EQUILIBRIUM MODEL WITH VERTICAL LINKAGES*

ABSTRACT The paper presents a simple three‐region, two‐sector general equilibrium model that is used for analyzing the effect of regional tax policies aimed at combat depopulation. The model includes exogenous asymmetry in terms of transport costs as well as a vertical industry structure that can account for endogenous location development in order to distinguish between the effects of “first nature” and “second nature” on the required subsidy for meeting the population policy target.     

Why Do Firms Relocate? Lessons from a Regional Analysis

In recent years, the qualitative evolution of relocations (from low-cost offshoring to more technologically intensive relocations) has become a new concern in political debate. Focusing on these new trends, the aim of this paper is to better understand relocations from the firms’ point of view. The concept of relocation is reformulated by adopting a broad definition considering it as a specific dimension of firms’ mobility options. We consider three analytical dimensions: relocation as a productive problem (“relational space” for coordination), relocation in a territorial dimension (“geographical space”) and relocation as a complex decision-making process (“political space”). On this basis, we combine two strands of literature (economics of proximity and institutional approaches of the firm) for a better understanding of the decision-making process and the resulting diversity of situations. The framework is finally applied to the specific case of the Aquitaine region of southwest France in order to identify the conditions of anchoring and mobility of firms in spatial terms. Our aim is to show that the decision-making process of relocations cannot be reduced to a simple cost calculation, leaving room for local public policies.     

In‐Situ Marginalisation: Social Impact of Chinese Mega‐Projects

This study offers a detailed analysis of an under‐researched social problem of in‐situ marginalisation and its causes by drawing on the concept of state entrepreneurialism. Our empirical data stem from the Lingang mega project in Shanghai and one of its neighbourhoods named Neighbourhood No.57 where we find that the residents have not been relocated but are instead suffering from declining public services and environmental quality from surrounding industrial developments. The root cause of this problem is the municipal government’s prioritisation of its strategic objectives of economic development over the livelihood of local residents. The strategic vision of the municipality has led to mass relocation in its early phases of development but in its later stages leaves many residents waiting for relocation whilst being gradually surrounded by industrial developments. Despite continued residential complaints and petitions, in‐situ marginalisation is not resolved due to the institutional arrangement of Lingang, which has centralised planning and financing powers to newly created project‐oriented state organisation. Social responsibilities have been relegated to lower‐tiered governments in Lingang which have neither planning power nor the financial resources to resolve the problems of residents. By examining the case of Lingang, this paper provides a different analytical framework for explaining the social problems emerging from China’s mega urban developments.     

Constraints on Local Welfare Discretion in an Era of Second‐Order Devolution

Under devolution, state and local governments are expected to use the greater authority granted to them to design new and innovative programs that are tailored to local needs. Existing research on the devolution of welfare programs has reported substantial variation in the policies adopted by states in the wake of welfare reform. However, under second‐order devolution, local governments also gained discretion over welfare services. Some have argued that, while devolution should increase flexibility, local governments face constraints that limit their functional discretion. Using California as an example, I assess whether there is variation in the service priorities adopted by local governments and whether these priorities translate to frontline practices. I show differences in the service priorities of local governments; however, these priorities are not associated with differences in sanctioning or time‐limit exemptions. Thus, while local governments may formally adopt different priorities, state and federal policy choices, as well as client characteristics, may restrict priorities from translating into differences in caseworker behavior.