When Local Governments Subsidize Firms: Some Guidelines

Certain cities and metropolitan areas have been lagging in economic growth for decades, while others have surged ahead. US regions used to be converging in economic terms, but this pattern has halted. These changes have been contributors to patterns of growing inequality, as well as to political divisions. This raises an obvious question: Can "place-based" public policy be used to stimulate the economy in slower-growth areas?  

I've written from time to time about proposals along these lines. For example, a couple of years ago Benjamin Austin, Edward Glaeser, and Lawrence H. Summers considered the problem and some of the options. For example, they pointed out that while additional infrastructure spending may be useful for other purposes, it's not clear that it's a tool that works well for touching off a wave of growth in a slow-growth area. They end up advocating geographically-targeted employment subsidies for jobs in certain geographic areas. 

Some of the proposals have focused more on spreading out research and development efforts across the country, through some combination of R&D funding at universities and technology centers. For example, last year Jonathan Gruber and Simon Johnson proposed that cities be able to bid for how they would used federal funds to support a local tech center. An independent commission would be determining how the funds would be allocated, but the funds would go only to cities with a population of at least 100,000 workers from age 25-64, where the college-educated share of such workers is at least 25%, and where the mean home price is less that $265,000, and the commute is less than 30 minutes. The commission would also look at measures of patents/worker in that area, as well as whether the area already has highly-ranked graduate school programs in science and tech areas. Robert D. Atkinson, Mark Muro, and Jacob Whiton made a broadly similar proposal for "growth centers" along these lines. 

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