Tax Subsidy Disclosure and Local Economic Effects

ABSTRACT We examine if the effectiveness of business tax subsidies varies based on state disclosure laws. The prior accounting literature on government disclosure documents substantial variation in the quality of such disclosures, raising questions about their effectiveness for monitoring. State and local business subsidies for investment and employment have tripled in size over the past 30 years, but transparency problems inhibit clear assessments of whether subsidies achieve their intended outcomes. We examine both internal disclosure laws, which mandate subsidy reporting by the granting state agency to other state oversight agencies, and external disclosure laws, which mandate reporting to the public. We find positive effects of subsidies on local employment when subsidies are subject to internal disclosure laws; by implementing such regimes, governments could forego 1.2–1.7 subsequent subsidies per county, saving $419.0–$593.5 million in aggregate. In contrast, we observe little effect of external disclosure, which we show is due to governments either substituting to other types of incentives or posting stale information that impedes public monitoring. We contribute to the government disclosure literature by demonstrating the real employment effects of internal government disclosures, and we provide policy‐relevant evidence about the conditions under which external disclosure regimes facilitate public monitoring.

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Publication Details

Journal
Journal of Accounting Research
Published
2024-12-11
DOI
https://doi.org/10.1111/1475-679x.12591
Citations
8
Primary Topic
Corporate Taxation and Avoidance
Type
article
Field-Weighted Citation Impact
7.57

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article

Tax Subsidy Disclosure and Local Economic Effects

Lisa De Simone, Rebecca Lester, ANEESH RAGHUNANDAN
8 citations
Journal of Accounting Research
Corporate Taxation and Avoidance
7.57
article

Tax Subsidy Disclosure and Local Economic Effects

Lisa De Simone, Rebecca Lester, ANEESH RAGHUNANDAN
article en
8 citations

Abstract

ABSTRACT We examine if the effectiveness of business tax subsidies varies based on state disclosure laws. The prior accounting literature on government disclosure documents substantial variation in the quality of such disclosures, raising questions about their effectiveness for monitoring. State and local business subsidies for investment and employment have tripled in size over the past 30 years, but transparency problems inhibit clear assessments of whether subsidies achieve their intended outcomes. We examine both internal disclosure laws, which mandate subsidy reporting by the granting state agency to other state oversight agencies, and external disclosure laws, which mandate reporting to the public. We find positive effects of subsidies on local employment when subsidies are subject to internal disclosure laws; by implementing such regimes, governments could forego 1.2–1.7 subsequent subsidies per county, saving $419.0–$593.5 million in aggregate. In contrast, we observe little effect of external disclosure, which we show is due to governments either substituting to other types of incentives or posting stale information that impedes public monitoring. We contribute to the government disclosure literature by demonstrating the real employment effects of internal government disclosures, and we provide policy‐relevant evidence about the conditions under which external disclosure regimes facilitate public monitoring.

Journal of Accounting ResearchVol. 63(2)
Yale University (US), The University of Texas at Austin (US), Stanford University (US)
Yale University, London School of Economics and Political Science, Yale School of Management, Stanford Graduate School of Business
Openalex Percentile: Top 3%
Corporate Taxation and Avoidance
7.57
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