Do firms prefer better infrastructure over low corporate taxes? Experimental evidence from a large-scale manager survey

Last registered on June 25, 2021

Pre-Trial

Trial Information

General Information

Title
Do firms prefer better infrastructure over low corporate taxes? Experimental evidence from a large-scale manager survey
RCT ID
AEARCTR-0007877
Initial registration date
June 25, 2021

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
June 25, 2021, 1:41 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

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Primary Investigator

Affiliation
ZEW Mannheim

Other Primary Investigator(s)

PI Affiliation
University of Mannheim
PI Affiliation
ZEW Mannheim

Additional Trial Information

Status
In development
Start date
2021-06-28
End date
2022-12-31
Secondary IDs
Abstract
Firm location and investment decisions are crucial for the economic prosperity of local communities. To that effect, local governments have a variety of policy tools at their disposal through which they can influence firms’ decisions in their location choices and investment decisions. Economic theory suggests, among others, that firms optimize in their investment decisions over location-specific tax costs, which reduce net profits, as well as over location-specific productive amenities, which increase productivity and expected profits. This project exploits a randomized information experiment among a representative survey of German firm managers to learn how firms perceive this optimization trade-off. Focusing on the question whether firms prefer better infrastructure access over low local corporate taxes, we first elicit respondents’ prior beliefs about the following local conditions in the municipality of the firm’s headquarter (i.e., the home municipality): the level of the local business tax rate, the share of German municipalities with a lower tax rate, the travel time to the next highway as well as the share of German municipalities with a lower travel time to the next highway than in the home municipality of the respondent firm, respectively. To make the inter-jurisdictional competition for firms via taxes and infrastructure at the local level in Germany equally salient to all of the respondents, we show a neutral introductory statement. Then, we randomly assign respondents to one of four experimental groups (one control group and three information-treatment groups). Treatment 1 informs about the actual share of German municipalities with a lower business tax rate, treatment 2 informs about the share of German municipalities with a lower travel time to the next highway, and treatment 3 informs about both types of findings (note that the information provided in all three treatments is truthful). A neutral control group does not receive information on any of these issues. After treatment administration, we first measure respondents’ perceived attractiveness of the locality in which the firm’s headquarters is located, which is our main outcome of interest. Second, we elicit investment plans of the respondents’ firms in their home municipality, neighboring municipalities, in other German municipalities or abroad. Third, respondents also state what business tax rate they think would be appropriate in their home municipality. Fourth, we also let respondents state their preference for further regional transfers to their home municipality. Fifth and last, respondents can also acquire information about the local business tax as well as local infrastructure access in a debriefing question. In our main analysis, we plan to estimate heterogeneous information-treatment effects by respondents’ prior beliefs. This will allow us to investigate the extent to which firm manager’s beliefs about the relative position of their home municipality in the domain of local business taxation and infrastructure access with respect to other German localities affect their perception of the location attractiveness of their home municipality. We also test whether these perceptions lead to changes in stated investment plans of firm managers across different sets of possible locations. Moreover, the information about both locational factors in the treatment 3 allows us to test whether infrastructure access is more important than low taxes (or vice versa).
External Link(s)

Registration Citation

Citation
Blesse, Sebastian, Florian Buhlmann and Davud Rostam-Afschar. 2021. "Do firms prefer better infrastructure over low corporate taxes? Experimental evidence from a large-scale manager survey." AEA RCT Registry. June 25. https://doi.org/10.1257/rct.7877
Sponsors & Partners

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Experimental Details

Interventions

Intervention(s)
We conduct the experiment in a sample of firm managers which we contact via email. On ex ante grounds, we do not know the exact number of participants but expect about 3000 participants. The survey is implemented in the German Business Panel which is administered by the SFB/Transregio 266 “Accounting for Transparency” at the University of Mannheim. Data is collected via an online survey platform using Qualtrics survey software. That is, our participants answer the survey questions autonomously on their own digital devices. Randomization is carried out by the SFB 266 at the respondent level, via a computer .

Our experiment is structured as follows:
Respondents will be randomly assigned (between subject) to treatment 1 (p=1/4), treatment 2 (p=1/4), treatment 3 (p=1/4), and a control group (p=1/4).
Intervention Start Date
2021-06-28
Intervention End Date
2022-12-31

Primary Outcomes

Primary Outcomes (end points)
Our primary outcomes of interest are (i) the perceived attractiveness of the municipality in which the firm’s headquarter is located, and (ii) the investment plans of the firm the respondent’s location versus other locations. We will show the respective average treatment effects and heterogeneous treatment effects by prior beliefs on the relative position of the home municipality in the domain of local business tax rates and infrastructure access, respectively.
Primary Outcomes (explanation)
(i) Perception of appropriate local business tax rate; (ii) Attitude towards regional economic development funds; (iii) Trading-off business taxes with infrastructure questions; (v) Information acquisition about local business tax versus infrastructure provision; Effect heterogeneities on the aforementioned secondary outcomes (i to iv); Effect heterogeneities by perceived local spending efficacy

Our experimental set-up allows us also to quantify elasticities to which the perceived relative positions of the home municipality in the distribution of statutory business tax rates as compared to the relative position of infrastructure access of the home town among German municipalities is valued by firm managers.

Secondary Outcomes

Secondary Outcomes (end points)
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
We conduct the experiment in a sample of probably about 3,000 firm managers. Please consider that we do not know the turnout of the survey ex ante but base our expectation on previous waves of the German Business Panel which administers the survey. The survey is conducted as an online questionaire within a representative firm survey (please see Bischof et al., 2021 for details).

Source: Bischof, J., Doerrenberg, P., Rostam‐Afschar, D., Simons, D., & Voget, J. (2021). The German Business Panel: Insights on Corporate Taxation and Accounting during the Covid-19 Pandemic. Available at SSRN 3777306.

Our experiment is structured as follows:
Stage 1: opener statement, headquarters location and spending efficacy
Stage 2: prior beliefs on the local business tax rate (level & relative position)
Stage 3: prior beliefs on the local access to infrastructure (level & relative position)
Stage 4: randomized information provision. Experimental groups are the following: Control group: No information; Treatment 1: information about relative position of headquarter municipality in distribution of local business tax rates, Treatment 2: information about relative position of headquarter municipality in travel time to nearest highway, Treatment 3: information about relative position of headquarter municipality in distribution of local business tax rates as well as information about relative position of headquarter municipality in travel time to nearest highway

Stage 5: measuring outcomes
Outcome 1: Outcome 1: Location attractiveness of “YOUR MUNICIPALITY”
Outcome 2: Stated investment plans of the firm by location
Outcome 3: Perception of appropriate local business tax rate
Outcome 4: Attitude towards regional economic development funds
Outcome 5: Trading-off business taxes with infrastructure in YOUR MUNICIPALITY
Outcome 6: Information acquisition
Experimental Design Details
Not available
Randomization Method
Randomization is carried out by the survey provider at SFB/Transregio 266 “Accounting for Transparency”, using a computer.
Randomization Unit
at the individual level
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
3000
Sample size: planned number of observations
3000
Sample size (or number of clusters) by treatment arms
Approx. 750 will likely be assigned to each of the treatment groups if the expected response rate will be achieved.
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
No
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number