Using a natural experiment, we show that temporary place-based subsidies generate persistent effects on economic density. The spatial regression discontinuity design controls for continuous local agglomeration externalities, so we attribute an important role to capital formation in explaining persistent spatial patterns of economic activity. This persistence is driven by higher local public
investment levels, which local governments could maintain after the end of the program because of a persistently higher tax base. We also find evidence for significant local relocation of economic
activity, which raises doubts that the net effect of the policy is positive. Finally, we show that transfers have capitalized in land rents such that pretreatment land owners have benefited from the program.
Ehrlich, Maximilian v., and Tobias Seidel.
"The Persistent Effects of Place-Based Policy: Evidence from the West-German Zonenrandgebiet."
American Economic Journal: Economic Policy,
State and Local Taxation, Subsidies, and Revenue
State and Local Government: Other Expenditure Categories
Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
Size and Spatial Distributions of Regional Economic Activity
Finance in Urban and Rural Economies
Regional Development Planning and Policy