Local Policy Misperceptions and Investment: Experimental Evidence from Firm Decision Makers

Sebastian Blesse (), Florian Buhlmann (), Philipp Heil and Davud Rostam-Afschar
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Sebastian Blesse: University of Leipzig
Florian Buhlmann: ZEW Mannheim

No 17868, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We study firm responses to local policies through a survey experiment, providing randomized information on the competitiveness of business tax rates and highway access in their headquarters’ municipality. Firms often misperceive local policy competitiveness, especially for tax rates. Investment decisions respond asymmetrically to tax competitiveness. Positive tax rank information reduces investment intentions in neighboring municipalities. Compared to this, negative tax news increase relocation plans. However, most firms receiving bad news plan to continue investing in their headquarters’ municipality, indicating home bias. These effects are strongest for mobile firms and corporations. Negative infrastructure news lower location satisfaction but do not influence investment.

Keywords: survey experiment; firm location; infrastructure; tax competition (search for similar items in EconPapers)
JEL-codes: H25 H32 H71 H72 H73 L21 R38 (search for similar items in EconPapers)
Date: 2025-04
New Economics Papers: this item is included in nep-exp
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Working Paper: Local Policy Misperceptions and Investment: Experimental Evidence from Firm Decision Makers (2025)
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