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Place-Based Policies and the Geography of Corporate Investment

Cameron Lapoint and Shogo Sakabe

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: We estimate the dynamic effects of place-based tax incentives on local investment, job creation, and firm relocation decisions using a series of policy experiments in Japan as our laboratory. The Japanese government rolled out the Technopolis program between 1984 and 1989, offering firms bonus depreciation rates as high as 30% towards tangible capital investment in economically peripheral regions. A follow-up policy enacted in 1989 expanded the set of eligible areas and increased bonus depreciation for firms in certain non-tradable industries. Using detailed multi-plant firm balance sheet data and several staggered difference-in-differences (DD) approaches, we find both policies generated employment and investment in building construction and non-real estate assets, with little evidence of spillovers to ineligible firms in treated areas. The effects are driven by more financially constrained firms and firms which rely on relatively long-lived assets such as buildings in their operations. Our results point to the importance of providing large and immediate rather than deferred financial incentives for inducing firms to make irreversible investments in struggling regions.

Pages: 46 pages
Date: 2021-07
New Economics Papers: this item is included in nep-geo, nep-tid and nep-ure
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