Political Economy of Business Mobility

Why do national and subnational governments offer lucrative incentives to attract and retain corporate headquarters (HQ), whose direct economic effects are often negligible? An answer may lie in the electoral effects of HQ relocation: voters respond to HQ relocation since it signals potential changes in economic welfare. However, voters’ evaluations depend on whether HQ moves in or out of their respective localities: When HQ relocate in, citizens tend to vote for the incumbent party in gubernatorial elections, expecting similar positive events to continue. When HQ relocate out, voters increase support for the Republican Party in an effort to lower the chances of recurrence. This is because of the pervasive belief that the Democratic Party tends to pursue the main policy drivers of HQ outflow—high corporate tax rates and less-friendly business environments. Using an original dataset of cross-state HQ relocation cases covered in news media from 1995 to 2015, I find robust evidence for the theory: HQ outflow results in greater vote share to Republican candidates whereas HQ inflow increases support for the incumbent party in gubernatorial elections. The findings have implications for the political economy of business-government relationships, the politics of investment, and our understanding of economic voting as well as electoral accountability. [Download paper]

How does the increased mobility of capital affected the policy choices of elected officials? It is no secret that policymakers have offered generous tax benefits to corporations in given locales due to domestic political consequences from firms’ (re)location decisions. In this article, I explore whether and how partisan governments respond differently to firms with different mobility. In relations with firms, left governments face a dilemma: they have strong political incentives to offer lower tax burdens to firms to deter potential moves outs of their operations, but, paradoxically, doing so could result in electoral costs as it can be viewed as a deviation of its policy platform. Left governments overcome this dilemma by leaning on offering lucrative tax treatment, which is not readily observable by voters. As a result, counter to conventional wisdom, left governments tend to provide mobile firms with more favorable effective corporate tax environments to a greater degree than right governments. To test the hypothesis, this study focuses on the partisanship of governors and firm-level variation in tax burdens in the states the U.S. Using a database of public firms in the U.S. from 1996 to 2014, I estimate fixed effects models, regression discontinuity design, and panel matching methods. The results provide supportive evidence of my theory: mobile firms such as multinational corporations and firms operating in multiple states, pay lower effective corporate tax rates under Democratic governors than Republican governors. The findings have implications for broad debates on the effects of economic globalization on policy levers of governments and the roles of domestic political institutions—especially partisan incentive structures.

Much ink has been spilled to explore the effect of party labels on voters’ perceptions of real-world economic conditions. Yet whether and how partisan policy orientation affects the attribution process in the wake of economic events remains understudied. This study offers new insights into this discourse by positing that the effects of party labels become potent when an event has negative consequences. Negative events incentivize voters to become better informed about the causes of events and to more actively evaluate the incumbent’s responsibility for those events. But in a complex policy environment, voters treat the incumbent’s partisan- ship as a proxy for her policy orientation. On the contrary, when positive events occur, voters have less of an incentive to indulge in costly information gathering, and the role of partisan cues in evaluations of policy information shrinks. Through a survey experiment that uses interstate corporate headquarters (HQ) relocation as a salient economic event, I find supportive evidence of this argument: When HQ outflow, a negative event, occurs, voters assign primary responsibility not to the Republican governor but to the Democratic Party, which, voters believe, supplies the policy that drives HQ outflow—a policy that emphasizes high corporate tax rates and, thus, an unfriendly business environment. However, such partisan differences disappear when HQ inflow occurs. I also find that the effects are heterogeneous with respondent’s partisanship and material incentives. The findings lend micro-foundational support for partisan blame attributions.