State Policies and Local Economies

Paper Session

Friday, Jan. 6, 2017 10:15 AM – 12:15 PM

Sheraton Grand Chicago, Erie
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Edward Coulson, University of California-Irvine

Persistence in Industrial Policy Impacts: Evidence From Depression-Era Mississippi

Matthew Freedman
,
Drexel University

Abstract

This paper studies the effects of a large-scale industrial policy implemented in 1930s Mississippi on contemporaneous and modern-day labor market outcomes. Attracted by unprecedented government incentives under Mississippi’s Balance Agriculture with Industry (BAWI) Program, 13 large manufacturing plants established operations in the state between 1936 and 1940. Using difference-indifferences and synthetic control matching techniques, I estimate that counties that received these plants experienced an over 15% increase in female labor force participation on average in the short run. Moreover, these effects persisted decades into the future, well after many of the original companies shut down. I also find suggestive evidence of an increase in educational attainment among women in counties where BAWI investment occurred. The results highlight the potential for even transitory government interventions to have long-lived effects on labor markets.

Mandate-Based Health Care Reform and Business Activity: Evidence From Massachusetts

Nadia Greenhalgh-Stanley
,
Kent State University
Shawn Rohlin
,
Kent State University

Abstract

This study examines the effect of mandate-based health care reform on new, existing, and total businesses by using Massachusetts health care reform as a natural experiment. As of April 12, 2006, firms with eleven or more employees were required to offer health insurance or pay a fine, while firms with less than eleven employees were exempt. Using the Dun and Bradstreet data and a difference-in-differences methodology augmented by a border approach, we find the reform did distort incentives for new and existing firms. More specifically, we find a shorter-term decrease of 0.4% of new business activity for firms with 11-24 employees in Massachusetts versus the adjacent border counterfactual area, followed by a longer-term increase of 1.4% in businesses with 10 or less employees and decrease of 0.2% for business with 11-24 employees. We find similar movement around the cutoff for existing businesses but little evidence of effects on the survival rate or overall employment in existing businesses. Overall, our findings suggest both new and existing businesses do adjust their employment around the cutoff but not enough to affect the overall business environment.

Banking Deregulation and Home Ownership

Zhenguo Lin
,
Florida International University
Yingchun Liu
,
University of North Texas
Jia Xie
,
Bank of Canada

Abstract

Since 1970s, most states in the U.S. removed restrictions on intrastate branching and interstate banking, which intensified bank competition and increased credit supply. We assess whether renters who live in the states that experienced banking deregulations are more likely to become home owners. By exploiting the cross-state variation in the timing of intra-state and inter-state banking deregulation over a 10-year period, we find that banking deregulations, by removing the barriers to branching within state and to out-ofstate bank entry, explain as high as 26% increase in transition probability from renters to homeowners. Our results are robust to potential sample-selection bias and functional misspecifications.

Local Sales Taxes, Employment, and Tax Competition

Shawn Rohlin
,
Kent State University
Jeffrey Thompson
,
Federal Reserve Board
Ninghua Zhong
,
Tongi University

Abstract

This paper estimates the effect of sales taxes on employment at state borders using county-level quarterly data and a newly developed data set of local tax rates. Sales tax increases, relative to cross-border neighbors, lead to losses of employment, as well as payroll and hiring, but these effects are only found in counties with large shares of residents working in another state. The employment effects are also likely to be relatively short-lived, as they occur in the period before tax competition occurs and competitive jurisdictions are able to strategically respond and minimize cross-border tax differentials. Comparing estimates of sales tax effects with and without local sales taxes show that omitting local taxes does not lead to meaningfully different estimates. Results suggest that employment in food and beverage stores is negatively affected when cross-border neighbors adopt low sales tax rates on food.
Discussant(s)
Jeffrey Lin
,
Federal Reserve Bank of Philadelphia
Aaron Yelowitz
,
University of Kentucky
Herman Li
,
University of Nevada-Las Vegas
Cynthia Rogers
,
University of Oklahoma
JEL Classifications
  • H7 - State and Local Government; Intergovernmental Relations
  • R5 - Regional Government Analysis