Research Stream #1: State Business Incentives and Economic Development
Job Creation Effects: Evidence from State Hiring Credits (Dissertation Chapter 1, Job Market Paper)
Whether state hiring credits actually induce job creation in local economies remains an important but understudied policy issue. Standard labor economic theories suggest a negative effect of the policy, but the assessment is largely based on evaluation of credits targeting the disadvantaged areas. Neumark (2013) argues that broad-based state hiring credits could be an integral fiscal policy tool to boost job creation, particularly in response to recessions when both credit constraints and labor markets are tighter. This paper contributes to the literature by examining the employment and earnings effect of state hiring credits across different business cycles. Analyzing the most comprehensive database on incentives and taxes covering 45 industries in 33 states between 1990 and 2015 constructed by Bartik (2017), I find (i) statistically significant and strongly negative employment effects, and statistically significant and weakly positive earnings per worker effects. (ii) With adjustment cost controls, employment effects remain negative and statistically significant, but to a lesser degree. (iii) When using state unemployment proxy for business cycles, the negative employment effects is magnified, but state-industry shift-share proxy suggests that incentives mitigate credit constraints. (iv) Restricting to export-base industries also does not significantly alter results, weakening the positive externalities argument. (v) Decomposition by establishment size reveals that the negative employment effect is persistent across all size groups. The key takeaway from the large state variation in incentives is that there are many idiosyncratic reasons for policy adoption, and some states are better at designing and implementing hiring credits than others.
Presented at George Mason University (March 2019), John Hopkins University (April 2019), Industry Studies Association (June 2019)
State Business Incentives and Employment Growth: Evidence across Firm Size and Firm Age (Dissertation Chapter 2)
While the bid for Amazon HQ2 caught headlines, it is certainly not the only example: in the last two decades, business incentives have tripled, costing states $50 billion annually. States have always used various forms of incentives to influence business relocation, expansion, and startup decisions. On average, only two percent of a state’s employers have more than 100 employees but they receive between 80 and 90 percent of all incentive dollars (LeRoy et al. 2015). Yet, incentives to such large firms tip less than 25 percent of relocation or expansion decisions (Bartik 2019). The key issue, then, is not “How much” but “To whom” and “What kind.” What the literature overlooks is a possibility of differential policy effects across firm size distribution, and five types of incentives: (i) job creation tax credit; (ii) property tax abatement; (iii) R&D tax credit; (iv) investment tax credit; (v) and, customized job training subsidy. Using a novel database on incentives, I find evidence that property tax abatement dampens employment growth for mature businesses, while customized job training subsidy boosts it for startups and small businesses. The key takeaway of the study is that incentives improving local levels of human capital work best in the interest of both local governments and firms, particularly for startups and small businesses.
Presented at BK2020 (Feb 2020), APPAM (Apr 2020, scheduled)
State Business Incentives and Entrepreneurship: State and City-level Analysis (Dissertation Chapter 3)
According to the Kauffman Foundation commissioned survey, 79 percent of entrepreneurs believe government incentives favor big businesses over small ones. So, do incentives favor large businesses and hurt small businesses and startups? I use a novel database on incentives to study the implications of state business incentives in 46 cities, 33 states, 7 industries over 17 years. I find that R&D tax credit does not alter firm birth, contraction, or expansion but significantly decreases the firm death rate. Given the underinvestment in R&D activities in the private sector due to high uncertainty and difficulties of appropriability, my findings suggest that public provisions of subsidy in research activities can potentially extend a lifeline to firms actively engaged in experimentation and innovation, which over time should generate higher knowledge spillovers and higher expected social returns.
Research Stream #2: Digital Platforms and Entrepreneurship
The Digital Entrepreneurial Ecosystem – A Critique and Reconfiguration (Small Business Economics, July 2019)
Sussan and Acs (2017) proposed the Digital Entrepreneurial Ecosystem (DEE), a novel framework to guide our understanding of entrepreneurship in the digital age. By integrating literatures on digital ecosystem and entrepreneurial ecosystem, they brought to attention the importance of examining entrepreneurship as an outcome of interactions between biotic and abiotic entities represented in four concepts: Digital User Citizenship, Digital Entrepreneurs, Digital Infrastructure Governance, and Digital Marketplace. This paper revisits the framework as a theory and critiques its concepts. First, loose definitions on the user and the agent make it difficult to distinguish one from the other. Second, “Digital Marketplace” is an overgeneralized concept, providing limited insight into interactions among biotic entities. These issues are addressed through the following reconfigurations: (1) Users are reintroduced as a heterogeneous group, who are differentiated based on their primary activity, as either consumers or producers. (2) Digital technology entrepreneurs are comprised of various agents that build complementary products and services connected to platforms. (3) Digital multi-sided platform is the intermediary for transaction of goods and services, and also a medium for knowledge exchanges that enables and facilitates innovative and entrepreneurial activities. The main contribution of the paper is in the reconfigurations that clearly lay the ground for a more sustainable DEE framework.
Presented at George Mason University (October 2018), Industry Studies Association (June 2019), University of South Carolina (2020)
Measuring the Digital Entrepreneurial Ecosystem: a European Perspective
with Zoltan Acs, David Audretsch, László Szerb, and Éva Komlósi.
The application of big data, new algorithms and cloud computing is creating a global digital platform economy built around platform companies (Kenny and Zyzman, 2016). The outcome of this information technological revolution, however, will be determined not only by technology, but by legal, social, political and business choices we make—governance. The digital entrepreneurial ecosystem framework situates the global platform economy in the broader context of users, agents, infrastructure, and institutions, such that two biotic entities (users and agents) actuate individual agency, and two abiotic components (digital infrastructure and digital platforms) form the external environment. We measure the digital entrepreneurial ecosystem for 116 countries, with four sub-indices, twelve pillars and 64 variables to guide public policy: competition, privacy, innovation, security.